Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that it was required
to file such reports), and (2) has been subject to such
filing requirements for the past
90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes o
No þ

As of June 30, 2009, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was approximately $263 million (based upon the
closing sale price of the common stock on that date on The
NASDAQ Global Select Market). For this purpose, all shares held
by directors, executive officers and stockholders beneficially
owning ten percent or more of the registrants common stock
have been treated as held by affiliates.

The number of shares of the registrants common stock
outstanding as of as of March 10, 2010 was 43,334,955

DOCUMENTS
INCORPORATED BY REFERENCE:

Portions of the registrants definitive proxy statement for
its 2010 annual meeting of stockholders, which is expected to be
filed with the Securities and Exchange Commission not later than
March 26, 2010 are incorporated by reference into
Part III of this report on
Form 10-K.
In the event such proxy statement is not filed by April 30,
2010, the required information will be filed as an amendment to
this report on
Form 10-K
no later than that date.

CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains forward-looking statements within the
meaning of the federal securities laws. These statements relate
to analyses and other information, which are based on forecasts
of future results and estimates of amounts not yet determinable.
These statements also relate to our future prospects,
developments and business strategies.

These forward looking statements are identified by the use of
terms and phrases such as anticipate,
believe, could, estimate,
expect, intend, may,
plan, predict, project, and
similar terms and phrases, including references to assumptions.
However, these words are not the exclusive means of identifying
such statements. These statements are contained in many sections
of this report, including Part II, Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations. Although we believe that our
plans, intentions and expectations reflected in or suggested by
such forward-looking statements are reasonable, we cannot assure
you that we will achieve those plans, intentions or
expectations. We believe that the following factors, among
others (including those described in Part I,
Item 1A. Risk Factors), could affect our future
performance and the liquidity and value of our securities and
cause our actual results to differ materially from those
expressed or implied by forward-looking statements made by us or
on our behalf: the cyclical nature of the metals industry;
decreases in the prices of zinc and nickel-related products;
long-term declines in demand for zinc and nickel products due to
competing technologies or materials; competition from global
zinc and nickel manufacturers; our ability to implement our
business strategy successfully; work stoppages and labor
disputes; material disruptions at any of our manufacturing
facilities, including for equipment or power failures;
fluctuations in the costs or availability of our energy
supplies; decreases in order volume from major customers; the
costs of compliance with environmental, health and safety laws
and responding to potential liabilities and changes under these
laws; failure of our hedging strategies, including those
relating to the prices of energy, raw materials and zinc
products; our ability to attract and retain key personnel; our
ability to protect our intellectual property and know-how; our
dependence on third parties for transportation services; and
risks associated with future acquisitions, joint ventures or
asset dispositions.

There may be other factors that may cause our actual results to
differ materially from the forward-looking statements. Our
actual results, performance or achievements could differ
materially from those expressed in, or implied by, the
forward-looking statements. We can give no assurances that any
of the events anticipated by the forward-looking statements will
occur or, if any of them does, what impact they will have on our
results of operations and financial condition. You should
carefully read the factors described in the Risk
Factors section of this report for a description of
certain risks that could, among other things, cause our actual
results to differ from these forward-looking statements.

All forward-looking statements are qualified in their entirety
by this cautionary statement, and we undertake no obligation to
revise or update this Annual Report on
Form 10-K
to reflect events or circumstances after the date hereof.

Horsehead Holding Corp. is the parent company of Horsehead
Corporation, a leading U.S. producer of specialty zinc and
zinc-based products and a leading recycler of electric arc
furnace dust (Horsehead), and The International
Metals Reclamation Company, a leading recycler of nickel-bearing
wastes and nickel-cadmium (Ni-Cd) batteries in North
America (INMETCO) that we acquired on
December 31, 2009. We have production
and/or
recycling operations at seven facilities in five states with a
new facility currently under construction. We also own and
operate on our premises a 110 megawatt coal-fired power plant
that provides us with a cost-competitive source of electricity
and allows us to sell approximately one-fifth of its capacity.
Our products are used in a wide variety of applications,
including in the galvanizing of fabricated steel products, as
components in rubber tires, alkaline batteries, paint, chemicals
and pharmaceuticals and as a remelt alloy in the production of
stainless steel. We believe that we are the largest refiner of
zinc oxide and Prime Western (PW) zinc metal, a
grade of zinc containing a minimum of 98.5% zinc, in North
America. We believe we are also the largest North American
recycler of electric arc furnace (EAF) dust, a
hazardous waste produced by the carbon steel mini-mill
manufacturing process. As a result of the INMETCO acquisition,
we believe we are also a leading recycler of EAF dust and other
nickel-bearing waste generated by specialty steel producers and
a leading recycler of Ni-Cd batteries in North America. We,
together with our predecessors, have been operating in the zinc
industry for more than 150 years and in the nickel-bearing
waste industry for more than 30 years. As a result of the
acquisition of INMETCO, we now operate as two business segments.

While we vary our raw material inputs, or feedstocks, based on
cost and availability, we generally produce our zinc products
using 100% recycled zinc, including zinc recovered from our
three EAF dust recycling operations located in three states. We
believe that our ability to convert recycled zinc into finished
products results in lower feed costs than for smelters that rely
primarily on zinc concentrates. Our three EAF dust recycling
facilities also generate service fee revenue from steel
mini-mills by providing a convenient and safe means for
recycling their EAF dust. In 2008, we began construction of a
new EAF dust processing facility located in South Carolina,
which is scheduled to commence operations in 2010. INMETCO
provides recycling services, some of which is on a tolling
basis, from a single production facility in Ellwood City,
Pennsylvania.

During 2009, we sold approximately 236.5 million pounds of
zinc products, generally priced at amounts based on premiums to
zinc prices on the London Metals Exchange (LME). For
the year ended December 31, 2009, we generated sales and
incurred a net loss of $216.5 million and
$27.5 million, respectively.

Competitive
Strengths

Leading
Market Positions and Strategically Located Recycling
Facilities

We believe that we are the largest refiner of zinc oxide and PW
zinc metal in North America, based on volume, and that as a
result of the INMETCO acquisition we are a leading recycler of
nickel-bearing waste material generated by the stainless and
specialty steel industry and a leading recycler of
nickel-bearing batteries. We also believe that we are the
largest North American recycler of EAF dust and that we
currently recycle more than half of all EAF dust generated in
the United States. In addition, our four company-owned EAF dust
recycling facilities are strategically located near major EAF
operators, reducing transportation costs and enhancing our
ability to compete effectively with other means of EAF dust
disposal. We believe that the location of our facilities,
together with our competitive cost position, extensive zinc
distribution network and proprietary market knowledge, will
enable us to maintain our leading market positions and continue
to capture market share in zinc products, zinc recycling and
nickel-bearing waste recycling.

Strong
Relationships with Diverse Customer Base

We believe that our product quality, reputation for on-time
delivery and competitive pricing enable us to maintain strong
relationships with a broad base of customers in each of our end
markets. For example, we believe we are the leading supplier of
zinc metal to the after-fabrication hot-dip segment of the North
American galvanizing industry. We also sell zinc oxide to over
200 producers of tire and rubber products, chemicals, paints,
plastics and

pharmaceuticals. We have supplied zinc oxide to nine of our
current ten largest zinc oxide customers for over ten years, and
we believe that we are the sole or primary supplier of zinc to
most of our customers. In addition, the U.S. Environmental
Protection Agency (EPA) has designated our recycling
processes as Best Demonstrated Available Technology
in the area of high-temperature metals recovery related to the
processing of EAF dust from both carbon steel mini-mill and
stainless steel producers. We are the largest recycler of EAF
dust in the U.S., and we now recycle EAF dust for nine of North
Americas ten largest carbon steel EAF operators and North
Americas three largest stainless steel producers, based on
2009 production volume. We are working to expand our recycling
capacity further in order to better service these and other
customers. In addition, INMETCO provides environmental services
to over 200 customers that generate nickel- containing waste
products such as filter cake, spent pickle liquor, grinding
swarf and mill scale. INMETCO also collects and recycles
batteries from The Rechargeable Battery Recycling Corporation,
founded in 1994 by five major rechargeable battery makers, as
well as through its own collection programs.

Low-Cost
Feedstock Sources

We believe that we are the only zinc smelter in North America
with the proven ability to refine zinc metal and zinc oxide
using 100% recycled zinc feedstocks. Our use of large amounts of
recycled feedstock reduces our exposure to increases in LME zinc
prices and increases our operating margins during periods of
high LME zinc prices. In addition, our EAF dust recycling
operations provide us with a reliable, cost-effective source of
recycled zinc without relying on third-party sellers.

Proven,
Proprietary Technology with Flexible Processes

Since our recycling processes convert EAF dust and other wastes
into saleable products, our customers generally face less
exposure to environmental liabilities from EAF dust, which the
EPA classifies as a listed hazardous waste, than if they
disposed of their EAF dust in landfills. In addition, we believe
our zinc smelter and refinery in Monaca, Pennsylvania is unique
in its ability to refine zinc using almost any form of
zinc-bearing feedstock. This flexibility allows us to modify our
feedstock mix based on cost and availability, as well as to use
100% recycled zinc feedstock, whether purchased from third
parties at a discount to the LME zinc price or generated by our
EAF dust recycling operations. We believe that INMETCOs
recycling process is a successful technology for the recycling
of a broad range of nickel-bearing waste products. INMETCO has
successfully licensed this technology in the past.

Strong,
Experienced Management Team

Our eight-member senior management team collectively has over
200 years of experience in zinc- and metal-related
industries. James M. Hensler, our Chief Executive Officer,
joined us in early 2004 and has since established a culture of
continuous improvement in safety and operational excellence,
which has led to significant cost reductions, productivity
improvements and growth.

Business
Strategy

Continue
to Focus on Production Efficiencies and Operating Cost
Reductions

We have reduced our manufacturing costs by increasing our usage
of low-cost feedstock, streamlining our organizational structure
and implementing Six Sigma (a business process
improvement methodology) initiatives, and we intend to continue
to focus on these and similar initiatives in the future. As part
of our Six Sigma initiatives, we made a series of
operating improvements at certain facilities. For example, at
our Calumet plant we have reduced the amount of non-zinc
materials fed to our smelter, thereby reducing operating costs
by approximately $1.4 million on an annual basis without
significant capital expenditures. At our Monaca facility we
implemented the use of larger coke in our furnaces in 2007
resulting in savings in excess of $1.5 million. Finally, in
response to a recent significant decrease in demand for zinc
metals resulting from the current economic downturn, we have
taken aggressive steps to reduce our operating costs, including
the shutdown of our smallest, highest cost recycling facility in
Beaumont, Texas, reductions in the price paid for purchased
feedstock as a percentage of the LME price, a reduction of our
salaried and temporary workforce and a cost-saving revision to
our construction

strategy for our new South Carolina facility. In 2009, we idled
our Bartlesville, Oklahoma hydrometallurgical facility and began
outsourcing the processing of the lead-bearing material at
reduced costs. Please see our Managements Discussion and
Analysis of Financial Condition and Results of Operations for a
further discussion of the economic downturn and the accompanying
decrease in demand.

Expand
EAF Dust Recycling Capacity

We estimate that in 2007 approximately one-third of the carbon
steel EAF dust generated per year was deposited in landfills in
the United States, including by existing customers. Since then,
new EAF steel plant projects have come online, further
increasing EAF dust generation in the United States. Due to
productivity, capital and operating cost efficiencies relative
to integrated steel mills, the mini-mill share of the
U.S. steel market has doubled in the last ten years and is
expected to account for over 70% of U.S. steel produced by
2017, according to the Steel Manufacturers Association. Steel
mini-mill operators have increasingly relied on recyclers rather
than landfills to manage this increased output. In order to grow
our EAF dust recycling business, we placed a new kiln with an
annual EAF dust recycling capacity of 80,000 tons into
production in early January 2008 at our facility in Rockwood,
Tennessee. We are also building a greenfield facility in
Barnwell, South Carolina that will further increase our
recycling capacity by an additional 180,000 tons per year. We
entered into a long term contract with a major U.S. steel
mini-mill producer to process all of the EAF dust generated at
its facilities located near our new plant. In 2009, we acquired
the EAF dust contracts held by Envirosafe Services of Ohio, Inc
(ESOI), a leading landfill disposer of EAF dust. In
addition to generating additional service fees, we expect that
our new kilns will provide us with additional low-cost recycled
zinc that we can use in our own smelting process or that we can
sell as feed to other zinc smelters. We expect to start the
first kiln at the new facility during the second quarter of
2010. The starting date of the second kiln will be dictated by
market conditions. We estimate that with the increased recycling
capacity, less than 10% of the EAF dust generated is now
deposited in landfills.

Diversify
and Expand Environmental Services Business

Our core strengths relate to our proven ability to manage
hazardous and non-hazardous wastes generated by industrial
processes and our experience and capabilities to recover
valuable metals from these waste streams. We expect to expand
our environmental services business into a broader range of
metal-bearing wastes. The acquisition of INMETCO is an example
of this diversification and we believe that INMETCO will be a
platform for further growth. We expect to continue to pursue
capital investment and acquisition opportunities in this area
and believe this will reduce our exposure to changes in zinc
prices.

Continue
to Reduce Exposure to Commodity Price Fluctuations

We sourced approximately 65% of our zinc feedstock in 2009 from
our EAF dust recycling operations, which feedstock is not
significantly impacted by changes in LME zinc prices. We will
continue to evaluate our zinc price hedging alternatives
considering the costs and benefits in light of the commodity
price environment, hedging transaction costs and the extent to
which we are able to increase the percentage of zinc we acquire
from our recycling operations. We hedged approximately 60% of
our expected production of zinc in 2008 and 2009 through the
purchase of put options whereby we would receive a minimum price
per pound for the quantity hedged. We paid a total of
$27.5 million for the options and received
$31.9 million in cash as the 2008 options settled. In
October 2008, we sold the 2009 put options for
$64.5 million, resulting in a $50.3 million gain. We
replaced the 2009 options with similar options having a strike
price of $0.50 per pound for a cost of $10.5 million. In
2009, we purchased put options for approximately 80% of our
expected production of zinc in 2010 having a strike price of
$0.65 per pound. The remainder of our zinc feedstock costs are
derived primarily from zinc secondaries which use LME-based
pricing, and therefore are somewhat naturally hedged against
changes in the LME price. We have also entered into forward
contracts for the purchase of coal for a fixed price through the
end of 2010. We believe that locking in a price for coal, which
comprised approximately 27% of our energy costs in 2009, will
stabilize our production costs and reduce the risk of coal
supply interruptions.

We intend to continue to leverage our technical expertise,
culture of innovation and close customer relationships in order
to identify and pursue new markets and applications for our
products. For example, we are currently testing new,
higher-margin applications for iron-rich material, a co-product
of EAF dust recycling, such as its potential uses as a low-cost
feed for iron and steel production, its use as a passive
water-treatment medium at coal mining sites that have acidic
mine drainage and as a daily cover or base material for
municipal landfills to reduce ground water contamination. We are
also evaluating new markets for our zinc powder, and we expect
that our expanded EAF dust recycling capacity will allow us to
enter new markets for the sale of crude zinc oxide
(CZO) to other zinc smelters in the U.S. and
internationally. In addition, we believe the INMETCO acquisition
provides new potential platforms for growth, including
increasing capacity of the existing facility, growing our share
of the battery recycling market, recycling other industrial
wastes to recover metals in addition to nickel and enabling us
to expand internationally. We also intend to continue to
identify and explore strategic acquisition opportunities.

Our
History

We, together with the previous owners of our assets, have been
operating in the zinc industry for more than 150 years.
Horsehead Industries, Inc. (HII) was formed as a
result of several purchases of assets and entities that
substantially form our existing company. In 2002, record-low
zinc prices, production inefficiencies, high operational costs
and legacy environmental costs associated with prior
owners/operators of our facilities caused HII to file for
Chapter 11 bankruptcy protection. An affiliate of Sun
Capital Partners, Inc. (together with its affiliates, Sun
Capital) purchased substantially all of the operating
assets and assumed limited liabilities of HII in December 2003
pursuant to a sale order under Section 363 of the
U.S. Bankruptcy Code. Sun Capital assisted us in hiring our
current chief executive officer and chief financial officer in
2004, and since that time we have implemented significant
operational improvements as well as experienced significantly
improved industry conditions. As a result of certain
transactions in 2007, Sun Capital and its affiliates no longer
own any of our outstanding common stock.

On November 30, 2006, we completed the private placement of
15,812,500 shares of our common stock at a price of $13.00
per share. On April 12, 2007, we completed the private
placement of 13,973,862 shares of our common stock at a
price of $13.50 per share. We used the net proceeds of the
offerings primarily to repurchase shares and redeem warrants
held by our pre-November 2006 stockholders (including Sun
Capital). On August 15, 2007, we completed the public
offering of 5,597,050 shares of our common stock at a price
of $18.00 per share (less discounts and commissions of $1.26) as
part of an underwritten public offering. We used a portion of
the net proceeds to retire substantially all debt and used the
remaining net proceeds of the public offering to fund capital
expansion and improvements and for general corporate purposes.

On August 13, 2007, the SEC declared effective a
registration statement that registered for resale up to
29,860,436 shares of our common stock issued in our 2006
and 2007 private placements.

In June 2009, we acquired the EAF dust collection business of
ESOI, the largest land-filler in our market. As part of this
acquisition, we purchased their EAF dust contracts, one of which
was for 10 years with a major Midwestern producer. We did
not acquire their landfill or landfill operations.

In September 2009, we completed an underwritten public offering
of 8,050,000 shares of common stock at $10.50 per share.

Our zinc recycling facilities recycle EAF dust into CZO, and
zinc calcine, which we then use as raw material feedstocks in
the production of zinc metal and value-added zinc products. Our
INMETCO facility recycles a broad range of nickel-bearing wastes
into a remelt alloy product used in the production of stainless
steel. Our recycling and production operations form a complete
recycling loop, from recycled metals to finished zinc or
nickel-bearing products. We believe we are the only zinc
producer in the U.S. that uses recycled materials for
substantially all of its zinc feedstocks.

Horsehead

Operations

Horsehead operates three hazardous waste recycling facilities
for the recovery of zinc from EAF dust and is building a fourth.
Our recycling process has been designated by the EPA as a
Best Demonstrated Available Technology for the
processing of EAF dust. Our recycling facilities are
strategically located near sources of EAF dust production. These
facilities recover zinc from EAF dust generated primarily by
carbon steel mini-mill manufacturers during the melting of steel
scrap, as well as from other waste material. We extract zinc
from EAF dust, and recycle the other components of EAF dust into
non-hazardous materials, using our proprietary Waelz
Kiln process at our Palmerton, Rockwood and Calumet
facilities.

Our Waelz Kiln recycling process blends, conditions, adds carbon
and pelletizes EAF dust, feeding it then into the kiln itself, a
refractory-lined tube that is approximately 160 feet in
length and 12 feet in diameter. During the passage through
the kiln, the material is heated under reducing conditions at
temperatures exceeding 1,100 degrees Celsius, thereby
volatilizing the nonferrous metals, including zinc. The
resulting volatized gas stream is oxidized and collected as CZO,
which has a zinc content of between 55% and 65%. In addition, we
produce iron-rich material that we sell for use as an aggregate
in asphalt and as an iron source in cement.

The majority of the CZO generated is shipped to our Palmerton
facility, where it is further refined in a process, called
calcining, whereby we heat the material to drive off
impurities. Through this rotary kiln process, which is fired
with natural gas, the zinc content is further upgraded to
approximately 65% to 70% and collected as zinc calcine in
granular form for shipment to our Monaca facility or sale to
other zinc refineries around the world. The metal concentrate
product from the calcining process is shipped to a third-party
processor for final metals recovery. We have added a washing
facility to remove chlorine at our smelting facility to allow us
to ship an increasing amount of CZO directly as a feed to our
Monaca, Pennsylvania, facility.

In order to expand our EAF dust recycling capacity, we brought
an 80,000 ton per year kiln online at our Rockwood, Tennessee
facility in January 2008 at a cost of approximately
$33 million. This new kiln provides approximately 14,500
tons of additional zinc that we use either directly in our own
smelting process or sell as feed to other zinc smelters. We are
currently building a new kiln facility with capacity of
approximately 180,000 tons per year in Barnwell, South Carolina
with an expected total cost of approximately $65 million.
We expect to start the first kiln at the new facility during the
second quarter of 2010 and expect to be in a position to start
the second kiln later in the year as market conditions dictate.

Our 175,000
tons-per-year
capacity electrothermic zinc smelter and refinery in Monaca
produces zinc metal and value-added zinc products (e.g., zinc
oxide) using a wide range of feedstocks, including zinc
generated by our recycling operations, zinc secondary material
from galvanizers and other users of zinc. This uniquely flexible
electrothermic smelter and refinery in Monaca provides a
substantial competitive advantage both in raw material costs
(where it is able to use a wide range of zinc-bearing
feedstocks) and in finished products (where, together with our
refining operations, it can produce a wide range of zinc metal
and value-added zinc products). As a result of reduced demand
for our zinc products resulting from the economic downturn, we
operated our smelting and refinery facility at less than
capacity in 2009, producing 106,000 tons of zinc.

Our Monaca smelter is the only smelter in North America that is
able to use this wide range of feedstocks, including 100%
recycled feedstocks, to produce our zinc products. Our unique
ability to vary our feedstock blend lowers our overall raw
materials costs without corresponding reductions in product
quality, as compared to other zinc smelters and refiners, which
generally can accept only a narrow slate of specific mined zinc
concentrates, together with only small amounts of recycled
materials. We also own and operate at our Monaca facility a 110
megawatt coal-fired power plant that provides us with a
cost-competitive source of electricity and allows us to sell
approximately one-fifth of its capacity.

The Monaca facility operates on a
24-hours-per-day,365-days-per-year
basis to maximize efficiency and output. EAF-sourced calcine and
other purchased secondary zinc materials are processed through a
sintering operation. The sintering process converts this
combined zinc feedstock into a uniform, hard, porous material
suitable for the electrothermic furnaces. Monacas seven
electrothermic furnaces are the key to Monacas production
flexibility. Sintered feedstock and metallic zinc secondary
materials are mixed with metallurgical coke and fed directly
into the top of the furnaces. Metallic zinc vapor is drawn from
the furnaces into a vacuum condenser, which is then tapped to
produce molten zinc metal. This metal is then either cast as
slab zinc metal, or conveyed directly to the zinc refinery in
liquid form. This integrated facility reduces costs by
eliminating the need to cast and then remelt the zinc to
refinery feed.

At the refinery, the molten zinc is directly fed through
distillation columns to produce an ultra-high-purity zinc vapor
that is condensed into thermally refined special
special high grade (SSHG) zinc metal or processed
through a combustion chamber into zinc oxide. The condensed
metal is either sold or sent for further conversion into zinc
powder.

We believe that our thermally produced SSHG zinc metal is among
the purest and highest quality SSHG zinc metal sold in North
America. Our zinc oxide is processed and separately refined
through the largest North American, and highly automated, zinc
oxide screening, coating and packing facility to create one of
our 50 grades of zinc oxide with ISO:9002 certification.

Our Product Development Lab, located at the Monaca site, is
designed for production of specially engineered zinc oxide
products for unique, high tech applications. One
such product is an extremely fine particle size (micronized)
zinc oxide that may be used in cosmetic and pharmaceutical
applications.

The Flow of Operations chart below describes our operations,
beginning with the input of raw materials, continuing through
the production processes and identifying finished products and
end uses for each such raw material.

Products
and Services

We offer a wide variety of zinc products and services. In 2009,
we sold approximately 118,000 tons of zinc products. The
following are our primary zinc products:

Zinc
Metal

Our primary zinc metal product is PW zinc metal, which we sell
to the hot-dip galvanizing and brass industries. We also produce
SSHG zinc metal, which is used as feed for the manufacture of
high-purity zinc powder and zinc alloys. SSHG zinc metal is an
ultra pure grade of zinc exceeding the American Society for
Testing and Materials standard for special high-grade zinc. Our
zinc metal is recognized within the galvanizing industry for its
consistent quality and appearance. We believe we are the leading
supplier of zinc metal to the after-fabrication hot-dip segment
of the North American galvanizing industry, who use our zinc
metal to provide a protective coating to a myriad of fabricated
products, from pipe and guard rails to heat exchangers and
telecommunications towers. We also sell PW zinc metal for use in
the production of brass, a zinc/copper alloy. We believe that
our operational standards and proximity to customers allow us to
deliver higher-quality metal than many of our competitors. To
accommodate various customer handling needs, our zinc metal is
sold in numerous forms, from 55-pound slabs to 2,500-pound
ingots.

Zinc
Oxide

We sell over 50 different grades of zinc oxide with differing
particle sizes, shapes, coatings and purity levels. Zinc oxide
is an important ingredient in the production of tire and rubber
products, chemicals, ceramics, plastics, paints, lubricating
oils and pharmaceuticals. The various end uses for zinc oxide
are:



Tire and rubber applications: Zinc oxide aids
in the vulcanization process, acts as a strengthening and
reinforcing agent, provides UV protection, and enhances thermal
and electrical properties. There is approximately a half pound
of zinc oxide in a typical automobile tire.



Chemical applications: In motor oil, zinc
oxide is used to reduce oxidation, inhibit corrosion and extend
the wear of automotive engines. In plastics, zinc oxide is an
effective UV stabilizer for polypropylene and polyethylene.



Ceramics: Ceramics containing zinc oxide are
used in electronic components. For example, in ceramic varistors
(surge protectors), zinc oxide allows for high temperature
stability, resistance to electrical load, current shock and
humidity.



Other applications: In paints, zinc oxide
provides mold and mildew protection, functions as a white
pigment and provides UV protection and chalking resistance. In
pharmaceutical applications, zinc oxide operates as a sunscreen,
a vitamin supplement and a medicinal ointment.

We created the market for EAF dust recycling for carbon steel
mini-mill producers with the development of our recycling
technology in the early 1980s, which has since been designated
by the EPA as the Best Demonstrated Available
Technology for processing of EAF dust, a hazardous waste
generated by steel mini-mills. To date, we have recycled over
8.0 million tons of EAF dust (equivalent to
1.6 million tons of zinc), representing the dust generated
in the production of over 500 million tons of steel. We
believe the recycling and conversion of EAF dust reduces the
steel mini-mills exposure to environmental liabilities
which may arise when the EAF dust is sent to a landfill.

In 2009, we recycled 411,000 tons of EAF dust compared to
518,000 tons in 2008. This reduction in processing was the
result of lower steel production during a softer economy. As a
result, we operated our recycling facilities at reduced levels
for the majority of the year. We ended the year with all of our
recycling facilities operating at full capacity. The
installation of a new Waelz Kiln in Rockwood in early January
2008 increased our recycling capacity by 80,000 net tons,
or 15%. We currently are constructing a new kiln facility in
South Carolina, adding additional EAF dust processing capacity.
We expect to start the first kiln at the new facility during the
second quarter of 2010 and expect to be in a position to start
the second kiln later in the year as market conditions dictate.

In June 2009, we acquired the EAF dust collection business of
ESOI, the largest land-filler in our market. As part of this
acquisition we purchased its EAF dust contracts, one of which
was a ten year contract with a major Midwestern producer, and
entered into a non-compete agreement for a 17 year period.

CZO
and Calcine Sales

In response to the strong demand for zinc-bearing feed materials
and attractive pricing, we began selling CZO generated in our
Waelz Kilns to other zinc smelters in 2007. We plan to expand
sales of this product over time.

Zinc
Powder and Copper-Based Powders

Our zinc powder is sold for use in a variety of chemical,
metallurgical and battery applications as well as for use in
corrosion-resistant coating applications. Zinc powder is
manufactured by the atomization of molten zinc.

We manufacture three basic lines of powders at our Palmerton
facility:



Special Zinc Powders: These are used in
general chemical and metallurgical applications and in friction
applications such as brake linings for automobiles.



Battery Grade Zinc Powders: These are used in
most types of alkaline batteries as well as mercuric oxide,
silver oxide and zinc-air batteries.



Copper-Based Powders: These include brass,
bronze and nickel-silver powders. These products are used in a
variety of applications including brazing, infiltrating and
powdered metallurgical hardware such as lock bodies, valves and
gears.

Sales and
Marketing

Horseheads sales and marketing staff consists of the
following:



A sales and marketing group comprised of sales professionals
whose goal is to develop and maintain excellent customer
relationships and provide key market analysis;

provides extensive laboratory services critical to maintaining
in-plant process control and to providing customer support by
certifying compliance to hundreds of unique product
specifications. We are ISO 9002 certified. Our laboratory also
offers sales and technical services support by assisting in new
product developments and troubleshooting various application and
processing issues both in-plant and with specific customers. We
also rely on a network of distributors with warehouses
throughout North America who assist us with supporting smaller
customers.

Customers

Most of the zinc metal we produce is purchased by galvanizers
and brass producers. We believe we are the leading supplier of
zinc metal to the after-fabrication hot-dip segment of the North
American galvanizing industry. We sell zinc metal to a broad
group of approximately 100 hot-dip galvanizers. In many cases,
these customers are also suppliers of secondary materials
(including zinc remnants of steel galvanizing processes) to us.

We sell zinc oxide to over 200 different customers under
contract as well as on a spot basis, principally to
manufacturers of tire and rubber products, lubricating oils,
chemicals, paints, ceramics, plastics and pharmaceuticals.

Our SSHG zinc metal product is used in the manufacturing of zinc
powder for the alkaline battery industry.

We typically enter into multi-year service contracts with steel
mini-mills to recycle their EAF dust. We provide our EAF dust
recycling services to over 45 steel producing facilities.

Raw
Material

In 2009, approximately 65% of the raw material used in the
Monaca facility was sourced through our EAF dust recycling
operations. The remaining 35% of the raw material was comprised
of zinc secondaries, which are principally zinc-containing
remnants of steel galvanizing processes, including top drosses,
bottom drosses and skimmings that we purchase primarily from
several of our metal customers. The prices of zinc secondaries
vary according to the amount of recoverable zinc contained and
provide us with a diverse portfolio of low cost inputs from
which to choose. In addition to the dross and skims from the
galvanizing industry, we purchase other types of zinc-bearing
residues from the zinc, brass and alloying industries. Many of
these materials are acquired from our own customers. We also buy
CZO from one of the other U.S. based EAF dust recyclers. In
addition, we also have long standing relationships with zinc
brokers in North America, Europe and South America. These
brokers in some cases act as an agent for us and are favorably
located to supply us with reliable and cost effective zinc
feedstock.

Power
Plant and Fuels

We rely on a combination of purchased and internally-generated
electricity for our operations. We generate substantially all of
our electricity requirements for Monaca at our
on-site
power plant, using Powder River Basin (PRB) coal as
our principal input. Sales of excess power capacity from this
power plant have also historically provided a reliable source of
revenue. In addition to the electricity used by our Monaca
facility, we use a combination of coke and natural gas in our
smelting and refining processes. Our recycling facilities use a
combination of coke, electricity and natural gas. In 2009, we
purchased the majority of our energy under supply contracts,
although we also engage in spot purchases. We purchase all of
our coal requirements pursuant to a supply agreement that
carries fixed prices through 2010.

Intellectual
Property

We possess proprietary technical expertise and know-how related
to EAF dust recycling and zinc production, particularly zinc
production using recycled feedstocks. Our proprietary know-how
includes production methods for zinc oxide and micro-fine zinc
oxides and widely varying customer specifications. As a major
supplier of zinc metal and other zinc-based products to
industrial and commercial markets, we emphasize developing
intellectual property and protecting our rights in our
processes. However, the scope of protection afforded by
intellectual property rights, including ours, is often uncertain
and involves complex legal and factual issues. Also, there can
be no assurance that intellectual property rights will not be
infringed or designed around by others. In addition, we may not
elect to

pursue an infringer due to the high costs and uncertainties
associated with litigation. Further, there can be no assurance
that courts will ultimately hold issued intellectual property
rights to be valid and enforceable.

Competition

We believe that we are a unique business, having no direct
competitor that recycles similar secondary materials into zinc
products in North America. Our primary competitors in the zinc
oxide segment include U.S. Zinc Corporation (US
Zinc), a wholly-owned subsidiary of Votorantim Metals,
Ltda., and Zochem, a wholly-owned subsidiary of Hudson Bay
Mining and Smelting Co. Limited, which is an integrated zinc
mining company. US Zinc, located in the middle-southern states
of the U.S., is also a zinc recycler. US Zinc is our primary
competitor but lacks our integrated processing and smelting
capabilities. Zochems product is sourced through the
Canadian operations of Hudson Bay Mining and Smelting Co.
Limited.

Approximately 75% of the zinc metal consumed in the U.S. is
imported. Therefore, we enjoy a domestic freight and reliability
advantage over foreign competitors with respect to
U.S. customers. Xstrata Plc (which acquired Falconbridge in
2006), Teck Cominco Limited and Penoles are the primary zinc
metal producers in the North American market. The vast majority
of the metal produced by these companies is used by continuous
galvanizers in the coating of steel sheet products. In addition,
these producers have mining and smelting operations while we
only engage in smelting. We primarily produce PW zinc metal for
use by hot-dip galvanizers.

We compete for EAF dust management contracts primarily with the
two other domestic recyclers of EAF dust, and to a lesser extent
with landfill operators. The domestic recyclers are Steel Dust
Recycling, and an EAF dust processing facility built by The
Heritage Group. Steel Dust Recycling commenced operations during
the second quarter of 2008 and was subsequently purchased in
October 2009 by Zinc Nacional, a Mexico-based recycler. The
Heritage Group built an EAF dust processing facility in Arkansas
and began operations in 2009. We expect to see new entrants to
once again explore opportunities in this area when zinc prices
are attractive. Our proven reliability, expanded processing
capacity and customer service have helped us maintain
long-standing customer relationships. Many of our EAF dust
customers have been under contract with us since our predecessor
began recycling EAF dust in the 1980s. In June of 2009, we
acquired the EAF dust collection contracts of ESOI.

ZincOx Resources plc acquired Big River Zinc Corporation with
the stated intention of producing zinc metal from recycled EAF
dust sourced from the U.S. (Envirosafe) and Turkey, with
initial estimated smelting output from EAF dust of 90,000 tons.
They announced the groundbreaking for their recycling plant in
Ohio in June, 2008; however, no construction activity was
evident at the end of 2009.

INMETCO

Recycling
Operations for Nickel-bearing Waste

INMETCO operates a high temperature metals recovery facility,
which utilizes a combination rotary hearth furnace and electric
arc smelting furnace to recover nickel, chromium, and iron
(along with smaller amounts of other metals) from a variety of
metal-bearing waste materials, generated primarily by the
specialty steel industry. INMETCOs main product is a
nickel-chromium-iron (Ni-Cr-Fe) remelt alloy ingot
that is used as a feedstock to produce stainless and specialty
steels. INMETCO also recycles nickel-cadmium batteries,
producing a cadmium metal product that is reused in the
production of nickel-cadmium batteries.

The first portion of the process consists of material
preparation, storage, blending, feeding and pelletizing. INMETCO
receives the various wastes and pretreats them when necessary to
ensure a uniform size of the raw material. These materials, as
well as flue dust and carbon are pelletized. Pellets are
transferred to the Rotary Hearth Furnace (RHF) for
the reduction of some oxidized metal to its metallic form.
Reduced pellets are fed to the EAF for production of Ni-Cr-Fe
remelt alloy. Slag discharged from the EAF is processed and sold
primarily as road aggregate.

The cadmium recovery process was added to the INMETCO facility
in 1995, with production commencing in 1996. This process is
operated under a licensing agreement with Saft AB. This process
involves the separation of the metal components of Ni-Cd
batteries. The cadmium recovery process involves a basic thermal
operation where cadmium or cadmium oxide is processed into high
purity cadmium metal. The cadmium metal is sold primarily back
into the Ni-Cd battery industry.

The Flow of Operations chart below describes the INMETCO
operations, beginning with the input of raw materials,
continuing through the production processes and indentifying
finished products.

Products
and Services

INMETCO provides recycling services to its customers under two
types of fee arrangements: toll processing arrangements and
environmental services arrangements.

Tolling
Services

Under the tolling arrangement, INMETCO charges a processing fee
per ton of waste received and returns a remelt alloy product
based on the wastes metal content and INMETCOs
historical metal recovery factors for similar waste products.
INMETCO serves almost all of the major austenitic stainless
steel manufacturers in the United States in its tolling segment.
We believe INMETCO is the only recycler of stainless steel
wastes in North America and that INMETCOs customers rely
on its services to promote sustainable business practices, to
avoid potential environmental liabilities associated with
disposing of hazardous wastes at landfills and to take advantage
of the return of valuable metals from their metal-bearing waste
products. Most of INMETCOs tolling customers have signed
long-term, exclusive contracts, under which INMETCO processes
their metal-bearing wastes (i.e., flue dust, mill scale,
grinding swarf and pickling filter cakes). INMETCO receives four
main nickel-containing waste materials from the specialty steel
industry which support the tolling segment of the
business. These are: flue dust, mill scale, grinding swarf and
pickling filter cakes from spent pickling solution. These waste
materials are received either in a dry form or a wet form
containing oil
and/or
water. Furnace baghouse dust or flue dust is generated during
the melting and refining steps in the manufacture of stainless
steel.

Under the environmental service fee arrangement, INMETCO
acquires waste materials and processes those materials with no
obligation to return any product to the customer. Depending on
the state of the metals markets, INMETCO either charges a fee or
pays to acquire environmental services materials. These
materials include batteries and specialty steel industry wastes.
Batteries include nickel-cadmium, nickel-metal hydride,
sodium-nickel-chloride and various other nickel-based batteries.
INMETCO also processes limited quantities of household alkaline,
zinc-carbon, and lithium batteries. Additionally, lithium-ion
and lead-acid batteries are sent to third-party recyclers for
processing. Specialty steel industry wastes include flue dust,
mill scale, grinding swarf and pickling filter cake along with a
wide variety of other nickel-bearing wastes. Revenues are
derived from these materials through the sale of remelt alloy
product and cadmium product, as well as scrap sales and
brokerage activities.

Remelt
Alloy

INMETCO sells its remelt alloy product, produced from waste
accepted as an environmental service, back to the stainless
steel industry. The sale of remelt alloy product is based on the
metals market prices, so the amount of INMETCOs revenues
and profits are subject to prevailing metal prices.

In addition to the production of the remelt alloy in 30-pound
ingot size, INMETCO also produces a larger 1000-pound ingot on
request.

Cadmium

INMETCO produces its cadmium metal in the form of shot or ingots
to a specification of at least 99.95% purity. INMETCO also
produces a portion of its product to a 99.99% grade. These
products are sold on a global basis under the CADMET
trademark.

Sales and
Marketing

INMETCOs marketing team consists of a sales manager and
two inside sales assistants. The marketing team provides
in-house INMETCO seminars in which current applicable
regulations regarding storage and treatment of wastes,
manifesting and transporting wastes and the recycling process
are discussed. These seminars conclude with a tour of the
INMETCO facility. INMETCO has also been active in exhibiting or
presenting papers at outside seminars and trade shows to promote
the capabilities of the business segment. The marketing team
supplements these activities with advertisements in applicable
industry publications, as well as on the Internet.

Customers

While INMETCO has over 450 customers in total, approximately 89%
of its sales are made to its top three customers. INMETCO has
had a long-term relationship with each of its major customers.
Its top three customers have been customers since INMETCO
commenced operations in the late 1970s.

Intellectual
Property

The INMETCO process enables the business to treat and reclaim
Ni-Cr-Fe bearing hazardous and non-hazardous materials in a low
cost, environmentally safe manner. The INMETCO process is
recognized by the EPA as the Best Demonstrated Available
Technology for the treatment of steelmaking dust (i.e.,
low zinc KO61, KO62 and F006 designated hazardous waste). The
INMETCO process has also been recognized by the EPA as the Best
Demonstrated Available Technology for the treatment of
cadmium-containing batteries.

Competition

We believe that our recycling facilities provide an
environmentally favorable alternative for disposing of hazardous
waste. Since 1978, INMETCO has provided a recycling alternative
for a wide variety of hazardous waste products produced by the
specialty steel industry, including steelmaking dust, mill scale
and grinding swarf. Stainless steel producers are faced with the
same dust disposal problems as carbon steel producers. However,
the process requirements and economics of stainless steelmaking
dust processing are different, since the cost of treating

the dust may be substantially offset by the recovery of valuable
metals such as nickel, chromium and iron, which are recycled and
returned to the specialty steel industry under toll arrangements.

In the metal processing industry, the most commonly used
techniques for managing and disposing of hazardous waste are
land disposal facilities and recycling facilities such as those
of INMETCO. We believe the INMETCO process offers three key
advantages over landfill: (1) it is a preferred solution
from an environmental and product stewardship perspective,
(2) it offers potential cost advantages through the return
of valuable metals, and (3) it avoids exposure to long-term
contingent liabilities associated with sending waste to landfill
facilities. Accordingly, we expect the INMETCO process to
continue to remain the alternative of choice for the specialty
steel industry. We believe INMETCO is the largest recycler of
nickel-bearing hazardous waste in the North America.

Governmental
Regulation and Environmental Issues

Our facilities and operations are subject to various federal,
state and local governmental laws and regulations with respect
to the protection of the environment, including regulations
relating to air and water quality, solid and hazardous waste
handling and disposal. These laws include the Comprehensive
Environmental Response, Compensation and Liability Act
(CERCLA or Superfund), the Resource
Conservation and Recovery Act (RCRA), the Clean Air
Act (CAA), the Clean Water Act, and their state
equivalents. We are also subject to various other laws and
regulations, including those administered by the Department of
Labor, the Federal Energy Regulatory Commission
(FERC), the Surface Transportation Board, and the
Department of Transportation. We believe that we are in material
compliance with the applicable laws and regulations, including
environmental laws and regulations governing our ongoing
operations and that we have obtained or timely applied for all
material permits and approvals necessary for the operation of
our business.

Horseheads process modifications resulted in operations
fully utilizing recycled feedstocks. The use of recycled zinc
feedstocks preserves natural resources, precluding the need for
mining and land reclamation, and thereby operating consistent
with the principles of sustainable development. Our recycling
services avoid the potential environmental impacts that are
associated with the landfilling of hazardous wastes. EAF dust
itself is a listed hazardous waste created during melting of
steel scrap in electric arc furnaces by the steel mini-mill
industry. Our recycling process has been designated by the EPA
as Best Demonstrated Available Technology for the
recycling of EAF dust.

We hold RCRA permits at our Ellwood City, Palmerton and
Bartlesville locations. We have irrevocable letters of credit in
place to satisfy RCRA financial assurance requirements with
respect to closure and post-closure care at our Ellwood City and
Palmerton facilities and similar state level requirements for a
residual-waste landfill at our Monaca facility. Bartlesville was
formerly a primary zinc processing facility operated by us and
our predecessor. The former facilities were closed under a RCRA
agreement with the State of Oklahoma, which was completed in
2003. Those facilities are currently in post-closure care.
Financial assurance at Bartlesville is met by the three parties
responsible for post-closure care meeting the financial
assurance test in the Oklahoma regulations.

Our Palmerton property is part of a CERCLA site that was added
to the National Priorities List in 1983. When the Palmerton
assets were purchased out of bankruptcy in December 2003, we
acquired only those assets, including real property, needed to
support the ongoing recycling and metal powders businesses at
that location, resulting in our holding approximately
100 acres of the approximately 1,600 acres owned by
HII. The successor in interest to previous owners has
contractually assumed responsibility for historic site
contamination and associated remediation, and has indemnified us
against any liabilities related to the property, including
Natural Resource Damages. Exceptions to this indemnity include
our obligations under the 1995 consent decree described below,
non-Superfund RCRA obligations and environmental liabilities
resulting from our ongoing operations.

We inherited certain of HIIs environmental liabilities
related to our Palmerton operations in the form of a 1995
Consent Decree between HII, the EPA and the Pennsylvania
Department of Environmental Protection (PADEP). Our
obligations pursuant to this consent decree included
construction of a storage building for calcine kiln feed
materials and the removal of historic accumulations of lead
concentrate from three buildings. These obligations are
currently being managed to the satisfaction of the regulatory
agencies and are reserved for on our balance sheet. Removal of
historic accumulations of lead concentrate was completed in 2008.

During 2009, our Ellwood City facility completed installation of
a new baghouse complex to control air emissions from its RHF,
which were previously controlled by a wet scrubber system. The
RHF baghouse complex was installed in accordance with a Consent
Order & Assessment (CO&A) entered
into with the PADEP prior to our acquisition of INMETCO.
Compliance certification testing of the RHF baghouse
installation was conducted and submitted to the State in the
later part of 2009. The CO&A is expected to be extinguished
in 2010 once final approval of compliance certification testing
is received from the State.

Employees

As of December 31, 2009, we employed 915 persons at
the following locations:

Union

Salaried

Hourly

Contract

Location

Personnel

Personnel

Expiration

Monaca

116

508

10/31/11

*

Pittsburgh

18



N/A

Bartlesville

1



N/A

Beaumont

2



N/A

Calumet

14

48

08/02/11

Palmerton

22

121

04/26/11

Palmerton (Chestnut Ridge Railroad)



3

12/15/11

Rockwood

12

46

07/01/11

Barnwell

4



N/A

Total

189

726

*

24 employees are covered by a separate union contract that
expires on March 15, 2011.

The employee figures do not include 98 employees, of which
29 are salaried and 69 are hourly, at our INMETCO facility in
Ellwood City, Pennsylvania. We purchased INMETCO at the close of
business on December 31, 2009.

We terminated the collective bargaining agreements with our
employees at our Bartlesville and Beaumont facilities on
November 16, 2009 and October 31, 2009, respectively.

The vast majority of our hourly personnel are unionized under
the United Steelworkers of America. Hourly workers receive
medical, dental and prescription drug benefits. We do not have a
defined benefit plan for hourly or salaried employees and no
company-paid medical plan for retirees. We have a 401(k) plan
for both our hourly and salaried employees. Our labor contracts
provide for a company contribution, and in most cases a company
match, which varies from contract to contract. We believe we
have satisfactory relations with our employees.

Chairman of the Board of Directors, Class I Director, President
and Chief Executive Officer

Robert D. Scherich

49

Vice President and Chief Financial Officer

Robert Elwell

56

Vice President  Operations

James A. Totera

53

Vice President  Sales and Marketing

Thomas E. Janeck

65

Vice President  Environment, Health and Safety

Ali Alavi

48

Vice President  Corporate Administration, General
Counsel and Secretary

Daryl K. Fox

60

Vice President  Human Resources

Mark Tomaszewski

53

President  INMETCO

James M. Hensler, Chairman of the Board of Directors,
President and Chief Executive Officer, joined us in April 2004.
He has over 30 years of experience working in the metals
industry. From 2003 to April 2004, Mr. Hensler was a
consultant to various companies in the metals industry. From
1999 to 2003, Mr. Hensler was Vice President of Global
Operations and Vice President and General Manager of the
Huntington Alloys Business Unit for Special Metals Corp., a
leading international manufacturer of high performance nickel
and cobalt alloys. Prior to that, Mr. Hensler was the
Executive Vice President for Austeel Lemont Co., General Manager
of Washington Steel Co. and Director of Business Planning for
Allegheny Teledyne Inc. He received a BS in Chemical Engineering
from the University of Notre Dame in 1977, an MSE in Chemical
Engineering from Princeton University in 1978 and an MBA from
the Katz Graduate School of Business at the University of
Pittsburgh in 1987.

Robert D. Scherich, Vice President and Chief Financial
Officer, joined us in July 2004. From 1996 to 2004,
Mr. Scherich was the Chief Financial Officer of Valley
National Gases, Inc. Prior to that, he was the Controller and
General Manager at Wheeling-Pittsburgh Steel Corp. and an
accountant at Ernst & Whinney. Mr. Scherich
received a BS in Business Administration from The Pennsylvania
State University in 1982.

Robert Elwell, Vice President  Operations,
joined us in June 2006 with 31 years of industry
experience. For the previous eight years, he was the President
of Greenville Metals, a division of Precision Castparts
Corporation. Previous positions included Vice President of
Manufacturing for Cannon-Muskegon Corporation (also a Precision
Castparts Corporation), Vice President of Quality and Technology
for Freedom Forge Corporation, Manufacturing Manager for Haynes
International, Inc. and several operating and technical
positions at Lukens Steel Co. Mr. Elwell has a BS in
Metallurgical Engineering from Lafayette College in 1975 and an
MBA from Widener University in 1979.

James A. Totera, Vice President  Sales and
Marketing, joined us in 1997. Prior to that, he was the Vice
President of Sales for Steel Mill Products (EAF dust recycling)
and also spent over 15 years working in sales positions
(including as General Manager of Sales) at Insul Company.
Mr. Totera received a BA in Economics, Administrative
Management Science and Psychology from Carnegie Mellon
University in 1979.

Thomas E. Janeck, Vice President  Environment,
Health and Safety, has worked for us and our predecessors since
1964. Prior to his current position, Mr. Janeck served in a
number of capacities and was most recently Vice President of
Environmental Services and Director of Regulatory Affairs.
Mr. Janeck is a member of the Board of Directors of the
National Mining Association and serves as Chairman of its
Environment Committee. Mr. Janeck received a BS in Chemical
Engineering from the University of Pittsburgh in 1967.

Ali Alavi, Vice President  Corporate
Administration, General Counsel and Secretary, joined us in
1996. Mr. Alavi previously served as our
Director & Counsel of Environment, Health &
Safety and Director of Environmental Performance. Prior to
joining us, Mr. Alavi worked as Assistant General Counsel
of Clean Sites, Inc., Senior Regulatory Analyst of the American
Petroleum Institute and Project Manager/Engineer for the
U.S. Army Toxic & Hazardous Materials Agency.
Mr. Alavi received a BA in Geography/Environmental Studies

from the University of Pittsburgh in 1983, an MS in Petroleum
Engineering from the University of Pittsburgh School of
Engineering in 1985 and a JD from the University of Maryland Law
School in 1993.

Daryl K. Fox, Vice President-Human Resources, joined us
in October 2005. He has over 36 years of Human Resources
experience working in the metals and transportation industries.
Prior to joining us, from August 2004 to February 2005,
Mr. Fox served as a consultant to Allegheny Technologies
Incorporated. Previously, Mr. Fox served as Vice
President  Human Resources for J&L Specialty
Steel, LLC, a producer of stainless steel, from June 1993 until
it was acquired by Allegheny Technologies Incorporated in July
2004. Mr. Fox received a BA in Sociology from Duke
University in 1973.

Mark Tomaszewski, President-INMETCO, joined us on
December 31, 2009 when we acquired INMETCO, where he has
served for over 30 years in positions ranging from General
Manager-Finance and Administration to his current position of
President of INMETCO, which position he has held since August
2008. Mr. Tomaszewski received a BS in Business
Administration from West Virginia Wesleyan College in 1978 and
an MS in Business Administration from Robert Morris University
in 1992.

Available
Information

We file annual, quarterly and current reports and other
information with the Securities and Exchange Commission
(SEC). These filings are available to the public at
the SECs web site at
http://www.sec.gov.
You may also read and copy any document we file at the
SECs public reference room located in Washington, DC
20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room.

Our internet website address is www.horsehead.net. Our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13 or 15(d) of the Exchange Act are available free
of charge through our website as soon as reasonably practicable
after they are electronically filed with, or furnished to, the
SEC. Additionally, our Code of Ethics may be accessed within the
Investor Relations section of our web site. Our website and the
information contained or incorporated therein are not intended
to be incorporated into this report.

ITEM 1A.

RISK
FACTORS

In addition to the other information in this Annual Report on
Form 10-K,
the following risk factors should be read carefully in
connection with evaluating our business and the forward-looking
information contained in this Annual Report on
Form 10-K.
Any of the following risks could materially adversely affect our
business, operating results, financial condition and the actual
outcome of matters as to which we have made forward-looking
statements in this Annual Report on
Form 10-K.
There may be additional risks and uncertainties that are not
presently known or that we do not currently consider to be
significant that may adversely affect our business, performance
or financial condition in the future.

The
metals industry is highly cyclical. Fluctuations in the
availability of zinc and nickel and in levels of customer demand
have historically been severe, and future changes and/or
fluctuations could cause us to experience lower sales volumes,
which would negatively impact our profit margins.

The metals industry is highly cyclical. The length and magnitude
of industry cycles have varied over time and by product, but
generally reflect changes in macroeconomic conditions, levels of
industry capacity and availability of usable raw materials. The
overall levels of demand for our products containing zinc or
nickel reflect fluctuations in levels of end-user demand, which
depend in large part on general macroeconomic conditions in
North America and regional economic conditions in our markets.
For example, many of the principal consumers of zinc metal and
zinc-related products operate in industries, such as
transportation, construction or general manufacturing, that
themselves are heavily dependent on general economic conditions,
including the availability of affordable energy sources,
employment levels, interest rates, consumer confidence and
housing demand. These cyclical shifts in our customers
industries tend to result in significant fluctuations in demand
and pricing for our products and services. As a result, in
periods of recession or low economic growth, such as the one we
are currently experiencing, metals companies, including ours,
have generally tended to under-perform compared to other
industries. We generally have high fixed costs, so changes in
industry demand that impact our production volume also can
significantly impact our

profit margins and our overall financial condition. Economic
downturns in the national and international economies or a
prolonged recession in our principal industry segments have had
a negative impact on our operations and on those of our
predecessor both recently and in the past, and a continuation or
further deterioration of current economic conditions could have
a negative impact on our future financial condition or results
of operations.

Current
or future credit and financial market conditions could
materially and adversely affect our business and results of
operations in several ways.

As widely reported, financial markets in the United States,
Europe and Asia recently experienced extreme disruption,
including, among other things, extreme volatility in securities
prices, severely diminished liquidity and credit availability,
rating downgrades of certain investments and declining
valuations of others. Despite some improvement in credit and
financial markets, there can be no assurance that there will not
be further deterioration in these markets and confidence in
economic conditions. These economic developments affect
businesses such as ours in a number of ways. Tightening of
credit in financial markets may delay or prevent our customers
from securing funding adequate to honor their existing contracts
with us or to enter into new contracts to purchase our products
and could result in a decrease in or cancellation of orders for
our products. Our customers may also seek to delay deliveries of
our products under existing contracts, which may postpone our
ability to recognize revenue on contracts in our order backlog.

Our business is also adversely affected by decreases in the
general level of economic activity, including the levels of
purchasing and investment in general. Strengthening of the rate
of exchange for the U.S. dollar against certain major
currencies may adversely affect our results or may adversely
affect our domestic customers ability to export their
product. We may also face increased risk that the counterparty
to a hedging transaction that we enter or have entered into may
default on its obligation to pay or deliver under the forward
contract. Our cash balance is concentrated in two
U.S. banks and our cash equivalents are guaranteed by the
Federal Deposit Insurance Corporation (FDIC) and the
United States Treasury. If the guarantees were ever invoked and
not satisfied on a timely basis, our liquidity would be
adversely affected.

We are unable to predict the likely duration and severity of the
current disruption in financial markets and adverse economic
conditions in the U.S. and other countries, and any
resulting effects or changes, including those described above,
may have a material and adverse effect on our business, results
of operations and financial condition.

Changes
in the prices of zinc and nickel will have a significant impact
on our operating results and financial condition.

We derive most of our revenue from the sale of zinc and nickel
-based products. Changes in the market price of zinc and nickel
impact the selling prices of our products, and therefore our
profitability is significantly affected by decreased zinc and
nickel prices. Market prices of these metals are dependent upon
supply and demand and a variety of factors over which we have
little or no control, including:



U.S. and world economic conditions;



availability and relative pricing of metal substitutes;



labor costs;



energy prices;



environmental laws and regulations;



weather; and



import and export restrictions.

Declines in the price of zinc have had a negative impact on our
operations in the past, and future declines could have a
negative impact on our future financial condition or results of
operations. In 2002, record low zinc prices, together with high
operational and legacy environmental costs and inefficiencies,
caused our predecessor, HII, to file for Chapter 11
bankruptcy protection. Market conditions beyond our control
determine the prices for our

products, and the price for any one or more of our products may
fall below our production costs, requiring us to either incur
short-term losses
and/or idle
or permanently shut down production capacity. Market prices for
zinc and nickel may decrease , and therefore our operating
results may be significantly harmed.

Some
of our products and services are vulnerable to long-term
declines in demand due to competing technologies, materials or
imports which would significantly reduce our
sales.

Our zinc and nickel-based products compete with other materials
in many of their applications. For example, our zinc is used by
steel fabricators in the hot dip galvanizing process, in which
steel is coated with zinc in order to protect it from corrosion.
Steel fabricators also can use paint, which we do not sell, for
corrosion protection. Demand for our zinc as a galvanizing
material may shift depending on how customers view the
respective merits of hot dip galvanizing and paint. In addition,
some of our customers may reduce or eliminate their usage of PW
grade zinc metal because it contains a small amount of lead, and
may switch to other grades of zinc metal that we do not produce.

Our nickel-based products are used in the stainless steel
industry. Demand for our products and services may decline if
demand for stainless steel lessens. Nickel-bearing stainless
steel faces competition from stainless steels containing a lower
level of nickel or no nickel. Domestic production of stainless
steel may be negatively impacted by imports.

In addition, in periods of high zinc and nickel prices,
consumers of these metals may have additional incentives to
invest in the development of technologically viable substitutes
for zinc and nickel-based products. Similarly, customers may
develop ways to manufacture their products by using less zinc
and nickel-based material than they do currently. If one or more
of our customers successfully identify alternative products that
can be substituted for our zinc or nickel-based products, or
find ways to reduce their zinc or nickel consumption, our sales
to those and other customers would likely decline.

Demand for our EAF dust or nickel-bearing waste recycling
operations may decline to the extent that steel mini-mill
producers identify less expensive or more convenient
alternatives for the disposal of their EAF dust or
nickel-bearing waste or if the EPA were to no longer classify
EAF dust as a listed hazardous waste. We may in the future face
increased competition from other EAF dust or nickel-bearing
waste recyclers, including new entrants into those recycling
markets, or from landfills implementing more effective disposal
techniques. Furthermore, our current recycling customers may
seek to capitalize on the value of the EAF dust or
nickel-bearing waste produced by their operations, or may seek
to recycle their material themselves, or reduce the price they
pay to us for the material they deliver to us. Any of these
developments would have an adverse effect on our financial
results.

We may
be unable to compete effectively against manufacturers of zinc
and nickel products in one or more of our markets, which would
limit our market share and/or reduce our sales and our operating
profit margins.

We face intense competition from regional, national and global
companies in each of the markets we serve, where we face also
the potential for future entrants and competitors. We compete on
the basis of product quality, on-time delivery performance and
price, with price representing a more important factor for our
larger customers and for sales of standard zinc products than
for smaller customers and customers to whom we sell value-added
zinc-based products. Our competitors include other independent
zinc producers as well as vertically integrated zinc companies
that mine and produce zinc. Some of our competitors have
substantially greater financial and other resources than we do.
In addition, we estimate that our products comprised only
approximately 12% of total zinc consumption in the U.S. in
2009, and several of our competitors have greater market share
than we do. Our competitors may also foresee the course of
market development more accurately than we do, sell products at
a lower price than we can
and/or adapt
more quickly to new technologies or industry and customer
requirements. We operate in a global marketplace, and zinc metal
imports now represent approximately 75% of U.S. zinc metal
consumption.

In the future, foreign zinc metal producers may develop new ways
of packaging and transporting zinc metal that could mitigate the
freight cost and other shipping limitations that we believe
currently limit their ability to more fully penetrate the
U.S. zinc market. If our customers in any of the end-user
markets we serve were to shift their

production outside the U.S. and Canada, then those
customers would likely source zinc overseas, and, as a result,
our net sales and results of operations would be adversely
affected. If we cannot compete other than by reducing prices, we
may lose market share and suffer reduced profit margins. If our
competitors lower their prices, it could inhibit our ability to
compete for customers with higher value-added sales and could
lead to a reduction in our sales volumes and profit. If our
product mix changed as a result of competitive pricing, it could
have an adverse impact on our gross margins and profitability.

If we
fail to implement our business strategy, our financial condition
and results of operations could be materially and adversely
affected.

Our ability to achieve our business and financial objectives is
subject to a variety of factors, many of which are beyond our
control. For example, factors such as increased competition,
legal and regulatory developments, general economic conditions
or increased operating costs could prevent us from increasing
our capacity, implementing further productivity improvements or
continuing to enhance our business and product mix.

An important part of our strategy is to grow our business by
expanding our capacity to process EAF dust. We placed into
service in early January 2008, a new kiln at our Rockwood,
Tennessee facility and construction of a greenfield facility is
currently underway. We have also initiated additional capacity
expansion projects. We may need additional financing to
implement our expansion strategy and we may not have access to
the funding required for the expansion on acceptable terms. Our
construction costs may also increase to levels that would make
our facilities unprofitable to operate. Our planned capacity
expansions may also suffer significant delays or cost overruns
as a result of a variety of factors, such as shortages of
workers or materials, transportation constraints, adverse
weather, unforeseen difficulties or labor issues, any of which
could prevent us from completing our expansion plans as
currently expected. Our expansion plans may also result in other
unanticipated adverse consequences, such as the diversion of
managements attention from our existing operations. In
addition, even if we can implement our strategy, projected
increases in EAF dust recycling may not materialize to the
extent we expect, or at all, resulting in unutilized capacity.
Any failure to successfully implement our business strategy,
including for any of the above reasons, could materially and
adversely affect our financial condition and results of
operations. We may, in addition, decide to alter or discontinue
certain aspects of our business strategy at any time.

Our
business could be harmed if we do not successfully manage the
integration of INMETCO or businesses that we acquire in the
future or we may not realize all or any of the anticipated
benefits from the INMETCO acquisition or acquisitions we make in
the future.

As part of our business strategy, we have and may continue to
acquire other businesses that complement our core capabilities.
The benefits of an acquisition may often take considerable time
to develop and may not be realized. Business acquisitions entail
a number of inherent risks such as:



the potential loss of key customers and employees of the
acquired business;



the in-ability to achieve the operating and financial synergies
anticipated from an acquisition;



disruptions that can arise from the integration of the acquired
business; and



potential unknown liabilities or other difficulties associated
with the acquired businesses.

As a result of the aforementioned and other risks, we may not
realize the anticipated benefits from acquisitions, which could
adversely affect our business.

Work
stoppages and other labor matters could interrupt our production
or increase our costs, either of which would negatively impact
our operating results.

As of December 31, 2009, we had 915 employees, 726, or
approximately 80%, of whom were covered by union contracts. The
six collective bargaining agreements to which we are a party are
scheduled to expire in 2011. We may be unable to resolve any of
these contract negotiations without work stoppages or
significant increases in costs, which could have a material
adverse effect on our financial condition, cash flows and
operating results. We may be unable to maintain satisfactory
relationships with our employees and their unions, and we may
encounter

strikes, further unionization efforts or other types of
conflicts with labor unions or our employees which may interfere
with our production or increase our costs, either of which would
negatively impact our operating results.

Equipment
or power failures, delays in deliveries or catastrophic loss at
any of our facilities could prevent us from meeting customer
demand, reduce our sales and/or negatively impact our net
income.

An interruption in production or service capabilities at any of
our production facilities as a result of equipment or power
failure or other reasons could limit our ability to deliver
products to our customers, reducing our net sales and net income
and potentially damaging relationships with our customers. Any
significant delay in deliveries to our customers could lead to
increased returns or cancellations, damage to our reputation
and/or
permanent loss of customers. Any such production stoppage or
delay could also require us to make unplanned capital
expenditures.

Furthermore, because many of our customers are, to varying
degrees, dependent on deliveries from our facilities, customers
that have to reschedule their own production due to our missed
deliveries could pursue financial claims against us. Our
facilities are also subject to the risk of catastrophic loss due
to unanticipated events such as fires, explosions, adverse
weather conditions or other events. We have experienced, and may
experience in the future, periods of reduced production as a
result of repairs that are necessary to our kiln, smelting and
refinery operations. If any of these events occur in the future,
they could have a material adverse effect on our business,
financial condition or results of operations. Our insurance
policies may not cover all of our losses and we could incur
uninsured losses and liabilities arising from, among other
things, physical damage, business interruptions and product
liability.

Fluctuations
in the cost or availability of electricity, coke, coal and/or
natural gas would lead to higher manufacturing costs, thereby
reducing our margins and limiting our cash flows from
operations.

Energy is one of our most significant costs, comprising
approximately $51 million of our production costs in 2009.
Our processes rely on electricity, coke and natural gas in order
to operate, our freight operations depend heavily on the
availability of diesel fuel, and our Monaca power plant uses
coal to generate electricity for our operations in that
facility. Energy prices, particularly for electricity, natural
gas, coal, coke and diesel fuel, have been volatile and have
exceed historical averages in recent years. These fluctuations
impact our manufacturing costs and contribute to earnings
volatility. We estimate that a hypothetical 10% increase in
electricity, natural gas and coke costs would have reduced our
income from operations by approximately $5 million for
2009. In addition, in the event of an interruption in the supply
of coal to our power plant at our Monaca facility, that facility
would be required to purchase electricity, which may not be
available, and would be subject to the same risks related to an
increase in electricity costs. In addition, at most of our
facilities we do not maintain sources of secondary power, and
therefore any prolonged interruptions in the supply of energy to
our facilities could result in lengthy production shutdowns,
increased costs associated with restarting production and waste
of production in progress. We have experienced rolling power
outages in the past, and any future outages would reduce our
production capacity, reducing our net sales and potentially
impacting our ability to deliver products to our customers.

If we
were to lose order volumes from any of our major customers, our
sales could decline significantly and our cash flows may be
reduced.

In 2009, our ten largest customers were responsible for 49% of
our consolidated sales. In 2009, three of INMETCOs
customers provided 89% of its sales. A loss of order volumes
from, or a loss of industry share by, any major customer could
negatively affect our financial condition and results of
operations by lowering sales volumes, increasing costs and
lowering profitability. In addition, several of our customers
have become involved in bankruptcy or insolvency proceedings and
have defaulted on their obligations to us in recent years. We
may be required to record significant additional reserves for
accounts receivable from customers which may have a material
impact on our financial condition, results of operations and
cash flows.

In addition, approximately 20% by volume of our zinc product
shipments in 2009 were to customers who do not have long-term
contractual arrangements with us. These customers purchase
products and services from us on a spot basis and may choose not
to continue to purchase our products and services. The loss of
these customers or a significant reduction in their purchase
orders could have a negative impact on our sales volume and
business.

Our
operations are subject to numerous federal and state statutes
that regulate the protection of the health and safety of our
employees, and changes in health and safety regulation could
result in significant costs, which would reduce our margins and
adversely affect our cash flow from operations.

We are subject to the requirements of the OSHA, and comparable
state statutes that regulate the protection of the health and
safety of workers. In addition, the OSHA hazard communication
standard requires that information be maintained about hazardous
materials used or produced in operations and that this
information be provided to employees, state and local government
authorities and citizens. We are also subject to federal and
state laws regarding operational safety. Costs and liabilities
related to worker safety may be incurred and any violation of
health and safety laws or regulations could impose substantial
costs on us. Possible future developments, including stricter
safety laws for workers or others, regulations and enforcement
policies and claims for personal injury or property damages
resulting from our operations could result in substantial costs
and liabilities that could reduce the amount of cash that we
would otherwise have to distribute or use to service our
indebtedness or further enhance our business.

Litigation
related to worker safety may result in significant liabilities
and limit our profitability.

We may be involved in claims and litigation filed on behalf of
persons alleging injuries predominantly suffered because of
occupational exposure to substances at our facilities. It is not
possible to predict the ultimate outcome of these claims and
lawsuits due to the unpredictable nature of personal injury
litigation. If these claims and lawsuits, individually or in the
aggregate, were finally resolved against us, our results of
operations and cash flows could be adversely affected.

We are
subject to stringent environmental regulation, which may cause
us to incur significant costs and liabilities that could
materially harm our operating results.

Our business is subject to a wide variety of environmental
regulations and our operations expose us to a wide variety of
potential environmental liabilities. For example, we recycle EAF
dust, which is listed and regulated as a hazardous waste under
the EPAs solid waste Resource Conservation and Recovery
Act (RCRA). Our failure to properly process and
handle EAF dust could result in significant liability for us,
including, among other things, costs for health-related claims
or for removal or treatment of hazardous substances. In
addition, as part of the asset purchase out of bankruptcy, we
inherited several environmental issues of our predecessor at our
Palmerton facility cited in a 1995 EPA and Pennsylvania
Department of Environmental Protection (PADEP)
consent decree. We have established a reserve in the amount of
$2.1 million, as of December 31, 2009, to cover the
cost of construction of a storage building for calcine kiln feed
materials at our Palmerton facility and closures related to RCRA
at our Bartlesville, Oklahoma facility. We also may incur costs
related to future compliance with Maximum Achievable
Control Technology (MACT) air emission
regulations relating to industrial boilers as well as future
MACT regulations relating to the non-ferrous secondary metals
production category, and these costs may be material. In
addition, Pennsylvania has adopted regulations with respect to
mercury emission regulations that are more stringent than
federal MACT regulations in this area, and such regulations may
result in additional ongoing compliance expenditures. Our total
cost of environmental compliance at any time depends on a
variety of regulatory, technical and factual issues, some of
which cannot be anticipated. Additional environmental issues
could arise, or laws and regulations could be passed and
promulgated, resulting in additional costs, which our reserves
may not cover and which could materially harm our operating
results.

Potential
climate change legislation could result in increased operating
costs and reduced demand for our products.

On December 15, 2009, the EPA officially published its
findings that emissions of carbon dioxide, methane and other
greenhouse gases, (GHG), present an
endangerment to human health and the environment because
emissions of such gases are, according to the EPA, contributing
to warming of the Earths atmosphere and other climatic
changes. These findings by the EPA allow the agency to proceed
with the adoption and implementation of regulations that would
restrict emissions of GHGs under existing provisions of the
federal Clean Air Act (CAA). In late September 2009,
the EPA had proposed two sets of regulations in anticipation of
finalizing its findings that would require a reduction in
emissions of GHGs from motor vehicles and that could also lead
to the imposition of

GHG emission limitations in CAA permits for certain stationary
sources. In addition, on September 22, 2009, the EPA issued
a final rule requiring the reporting of GHG emissions from
specified large GHG emission sources in the United States
beginning in 2011 for emissions occurring in 2010. The adoption
and implementation of any regulations imposing reporting
obligations on, or limiting emissions of GHGs from, our
equipment and operations could require us to incur significant
costs to reduce emissions of GHGs associated with our operations.

Also, on June 26, 2009, the U.S. House of
Representatives approved adoption of the American Clean
Energy and Security Act of 2009 (ACESA), which
is also known as the Waxman-Markey
cap-and-trade
legislation. The purpose of ACESA is to control and reduce
emissions of GHGs in the United States. ACESA would establish an
economy-wide cap on emissions of GHGs in the United States and
would require an overall reduction in GHG emissions of 17% (from
2005 levels) by 2020, and by over 80% by 2050. Under ACESA, most
sources of GHG emissions would be required to obtain GHG
emission allowances corresponding to their annual
emissions of GHGs. The number of emission allowances issued each
year would decline as necessary to meet ACESAs overall
emission reduction goals. As the number of GHG emission
allowances permitted by ACESA declines each year, the cost or
value of allowances would be expected to escalate significantly.
The net effect of ACESA would be to impose increasing costs on
the combustion of carbon-based fuels such as oil, refined
petroleum products and gas. The U.S. Senate has begun work
on its own legislation for controlling and reducing emissions of
GHGs in the United States. If the Senate adopts GHG legislation
that is different from ACESA, the Senate legislation would need
to be reconciled with ACESA and both chambers would be required
to approve identical legislation before it could become law.

We believe we are in substantial compliance with all existing
environmental laws and regulations applicable to our current
operations. Additionally, we are not aware of any environmental
issues or claims that will require material capital expenditures
during 2010. However, accidental spills or releases may occur in
the course of our operations, and we cannot give any assurance
that we will not incur substantial costs and liabilities as a
result of such spills or releases, including those relating to
claims for damage to property and persons. Moreover, we cannot
give any assurance that the passage of more stringent laws or
regulations in the future will not have a negative effect on our
business, financial condition and results of operations.

Our
hedging strategies may fail to protect us from changes in the
prices for natural gas, coal and zinc, which could reduce our
gross margin and cash flow.

We pursue various hedging strategies, including entering into
forward purchase contracts and put options, in order to reduce
our exposure to losses from adverse changes in the prices for
natural gas, coal and zinc. Our hedging activities vary in scope
based upon the level and volatility of natural gas, coal and
zinc prices and other changing market conditions. Our hedging
activity may fail to protect or could harm our operating results
because, among other things:



hedging can be expensive, particularly during periods of
volatile prices;



available hedges may not correspond directly with the risks that
we are seeking to protect ourselves against;



the duration of the hedge may not match the duration of the risk
that we are seeking to protect ourselves against; and



the counterparty to a hedging transaction may default on its
obligation to pay or deliver under the forward contract.

We
depend on the service of key individuals, the loss of whom could
materially harm our business.

Our success will depend, in part, on the efforts of our
executive officers and other key employees, none of whom are
covered by key person insurance policies. These individuals
possess sales, marketing, engineering, manufacturing, financial
and administrative skills that are critical to the operation of
our business. If we lose or suffer an extended interruption in
the services of one or more of our executive officers or other
key employees, our business, results of operations and financial
condition may be negatively impacted. Moreover, the market for
qualified individuals may be highly competitive and we may not
be able to attract and retain qualified personnel to succeed
members of our management team or other key employees, should
the need arise.

We may
not be able to protect our intellectual property, particularly
our proprietary technology related to the recycling of EAF dust,
the smelting of recycled zinc and the processing of
nickel-bearing materials. Our market share and results of
operations could be harmed.

We rely upon proprietary know-how and continuing technological
innovation and other trade secrets to develop and maintain our
competitive position. Our competitors could gain knowledge of
our know-how or trade secrets, either directly or through one or
more of our employees or other third parties. If one or more of
our competitors can use or independently develop such know-how
or trade secrets, our market share, sales volumes and profit
margins could be adversely affected.

We
depend on third parties for transportation services, and their
failure to deliver raw material to us or finished products to
our customers could increase our costs and harm our reputation
and operating results.

We rely primarily on third parties for transportation of the
products we manufacture, as well as the delivery of EAF dust to
our recycling plants and other raw materials, including recycled
zinc, to our Monaca production facility. In particular, a
substantial portion of the raw materials we use is transported
by railroad, which is highly regulated. If any of our
third-party transportation providers were to fail to deliver our
products in a timely manner, we may be unable to sell those
products at full value, or at all. Similarly, if any of these
providers were to fail to deliver raw materials to us in a
timely manner, we may be unable to meet customer demand. In
addition, if any of these third parties were to cease operations
or cease doing business with us, we may be unable to replace
them at reasonable cost. Any failure of a third-party
transportation provider to deliver raw materials or finished
products in a timely manner could disrupt our operations, harm
our reputation and have a material adverse effect on our
financial condition and operating results.

The
market price for shares of our common stock has been and may
continue to be highly volatile and subject to wide
fluctuations.

The market for common stock has recently been subject to
significant disruptions that have caused substantial volatility
in the prices of these securities, which may or may not have
corresponded to the business or financial success of the
particular company. The market price for shares of our common
stock has been volatile and could decline if our future
operating results fail to meet or exceed the expectations of
market analysts and investors or current economic or market
conditions persist or worsen.

Some specific factors that may have a significant effect on the
future market price of our shares of common stock include:

As a result of these and other factors, you may be unable to
resell your shares of our common stock at or above the price you
paid for such shares.

We do
not have any current plan to pay dividends on our common stock,
and as a result, your only opportunity to achieve a return on
your investment in our common stock is if the price of our
common stock increases.

We anticipate that we will retain all future earnings and other
cash resources for the future operation and development of our
business. Accordingly, we do not intend to declare or pay
regular cash dividends on our common stock in the near future.
Payment of any future dividends will be at the discretion of our
board of directors after taking into account many factors,
including our operating results, financial conditions, current
and anticipated cash needs and plans for expansion. The
declaration and payment of any dividends on our common stock may
also be restricted by the terms of any future credit facilities.
As a result, your only opportunity to achieve a return on your
investment in us will be if the price of our common stock
increases and if you are able to sell your shares at a profit.
You may not be able to sell shares of our common stock at a
price that exceeds the price that you pay.

Provisions
of our amended certificate of incorporation and by-laws could
delay or prevent a takeover of us by a third party and may
prevent attempts by stockholders to replace or remove our
current management.

Provisions in our amended certificate of incorporation and
by-laws and of Delaware corporate law may make it difficult and
expensive for a third party to pursue a tender offer, change in
control or takeover attempt that is opposed by our management
and board of directors. These anti-takeover provisions could
substantially impede the ability of public stockholders to
benefit from a change of control or change our management and
board of directors.

In addition, Section 203 of the Delaware General
Corporation Law may discourage, delay or prevent a change in
control by prohibiting us from engaging in a business
combination with an interested stockholder for a period of three
years after the person becomes an interested stockholder. These
provisions could limit the price that certain investors might be
willing to pay in the future for shares of our common stock and
limit the return, if any, you are able to achieve on your
investment in us.

As of December 31, 2009, our zinc production operations are
located at Monaca and Palmerton, Pennsylvania and our zinc
recycling operations are located in Palmerton, Calumet,
Illinois, Rockwood, Tennessee and Beaumont, Texas. We expect to
commence recycling operations at one of two kilns at our
Barnwell, South Carolina zinc recycling facility by the end of
the second quarter 2010. The annual capacity of our South
Carolina facility is expected to be 180,000 tons when it is
fully operational. Our hydrometallurgical processing facility is
in Bartlesville, Oklahoma. Our INMETCO recycling operations are
located at Ellwood City, Pennsylvania.

The chart below provides a brief description of each of our
production facilities:

Own/

Annual

Location

Lease

Process

Product

Capacity

(Tons)

Monaca, PA

Own

Finished Product

PW Metal

88,000

(5)

Zinc Oxide

90,000

(5)

SSHG Metal

15,000

(5)

Zinc Dust

5,900

(5)

Bartlesville, OK

Own

Recycling

Lead Carbonate

28,000

* (6)

Beaumont, TX

Own(1)

Recycling

CZO(2)

28,000

**(6)

Calumet, IL

Own

Recycling

CZO

169,000

**

Palmerton, PA

Own

Recycling

Calcine

130,000

(3)

CZO

273,000

**

Zinc Powder

5,000 to 14,000

(4)

Finished Products

Zinc Copper Base

3,000

Rockwood, TN

Own

Recycling

CZO

148,000

**(7)

Ellwood City, PA

Own

Recycling

Nickel-chromium-iron alloy

70,000

**

Cadmium

5,000

Total EAF Recycling Capacity

618,000

Total Smelting Capacity

175,000

*

Lead concentrate processed

**

EAF dust and other metal-bearing wastes recycling and processing
capacity

(1)

Facility is owned, property is leased; lease expires July 2011.

(2)

CZO, with approximately 55%  65% zinc content, is
produced by our recycling operations and is used as a feedstock
for our zinc facility in Monaca or further processed in
Palmerton into zinc calcine (up to 65%  70% zinc
content) before being used as a feedstock in Monaca.

(3)

Assumes that one of three kilns is operated to produce calcine
and the other two kilns are operated to produce CZO.

(4)

Depending upon grade.

(5)

Operating at 70% of annual capacity.

(6)

Operations suspended in the first quarter of 2009.

(7)

Operating two kilns beginning in November 2009.

We believe that our existing space is adequate for our current
operations. We believe that suitable replacement and additional
space will be available in the future on commercially reasonable
terms.

We are party to various litigation, claims and disputes,
including labor regulation claims and U.S. Occupational
Safety and Health Act (OSHA) and environmental
regulation violations, some of which are for substantial
amounts, arising in the ordinary course of business. While the
ultimate effect of such actions cannot be predicted with
certainty, we expect that the outcome of these matters will not
result in a material adverse effect on our business, financial
condition or results of operations.

We entered into a Consent Order and Agreement with the
Pennsylvania Department of Environmental Protection, dated
June 28, 2006, related to the resolution of fugitive
emission violations at our Monaca facility. Under the Consent
Order and Agreement, we are required to submit a written plan
for evaluating and implementing corrective action regarding
fugitive air emissions at our Monaca facility, and to implement
the required corrective action. We have delivered the
implementation plan and have begun corrective measures,
including enhancements to emission incident reporting and
follow-up;
maintenance and preventive maintenance on certain emission
control equipment such as ducts, capture hoods, fabric-filter
collectors and appurtenances; and development and implementation
of department-specific emission-control plans. Additionally, we
paid an initial civil penalty of $50,000 and were obligated to
pay an additional $2,500 monthly, subject to extended or
early termination. The consent order was recently extended to
July 2010.

Our common stock has been listed on The NASDAQ Global Select
Market under the symbol ZINC since August 10,
2007. Prior to that time, there was no public market for our
common stock. The initial public offering price of our common
stock was $18.00 per share. The highest and lowest sale prices
of our common stock for the most recent eight quarters were:

Quarter

High

Low

2009

10/01/09  12/31/09

$

13.36

$

9.35

07/01/09  09/30/09

12.90

7.11

04/01/09  06/30/09

9.34

5.15

01/01/09  03/31/09

5.90

3.15

2008

10/01/08  12/31/08

$

5.91

$

2.26

07/01/08  09/30/08

12.83

5.43

04/01/08  06/30/08

15.45

11.25

01/01/08  03/31/08

18.31

11.20

As of March 10, 2010, there were six holders of record of
our common stock and approximately 11,350 beneficial owners of
such stock. The transfer agent and registrar for our common
stock is Computershare Investor Services,
P.O. Box 43078, Providence, Rhode Island,
02940-3078,
Toll-free telephone
800-622-6757
(US, Canada, Puerto Rico),
781-575-4735
(non-US).

We currently do not plan to pay dividends on our common stock.
Any future credit facility that we may enter into might restrict
our ability to pay dividends.

Any future determination to pay dividends will depend upon,
among other factors, our results of operations, financial
condition, capital requirements, debt covenants, any contractual
restrictions and any other considerations our board of directors
deems relevant.

Securities
Authorized for Issuance under Equity Compensation
Plans

Information regarding securities authorized for issuance under
our equity compensation plans may be found in our Proxy
Statement related to the 2010 Annual Meeting of Stockholders and
is incorporated herein by reference.

The following graph compares the twenty-eight month cumulative
stockholder return on our common stock with the return on the
Russell 2000 Index and a Peer Group Index, from August 31,
2007 through December 31, 2009, the end of our fiscal year.
The graph assumes investments of $100 on August 10, 2007 in
our common stock, the Russell 2000 Index and the Peer Group
Index and assumes the reinvestment of all dividends. The Peer
Group Index is composed of Harsco Corp., Lundin Mining Corp.,
Nyrstar, Schnitzer Steel Industries Inc., Teck Cominco Limited,
Umicore SA, Sims Group Limited, Hudbay Minerals Inc. and
Breakwater Resources Limited and is weighted by each of their
relative market capitalizations at the beginning of each month
for which returns are reported. One member of the Peer Group in
2007, Metals Management, Inc., merged in 2008 with another
member of the Peer Group, Sims Group Limited, and is therefore
no longer included in the Peer Group Index.

COMPARISON OF 28 MONTH CUMULATIVE TOTAL RETURN*Among Horsehead Holding Corp., The Russell 2000 Index
And A Peer Group

*$100 invested on
8/10/07 in
stock or index, including reinvestment of dividends.

Fiscal year ending December 31.

2007

2008

2009

8/10

8

9

10

11

12

1

2

3

4

5

6

7

8

9

10

11

12

1

2

3

4

5

6

7

8

9

10

11

12

All amounts rounded to the
nearest dollar

Horsehead Holding Corp.

$

100

$

101

$

121

$

123

$

89

$

91

$

81

$

84

$

62

$

75

$

76

$

65

$

66

$

44

$

32

$

19

$

17

$

25

$

21

$

20

$

30

$

38

$

39

$

40

$

57

$

60

$

63

$

51

$

60

$

69

Russell 2000

100

101

102

105

98

98

91

88

88

92

96

88

92

95

88

69

61

65

57

50

55

63

65

66

73

75

79

74

76

82

Peer Group

100

107

116

119

108

112

101

113

111

117

124

114

101

95

67

36

36

40

38

32

39

46

55

54

60

61

68

68

73

73

Issuer
Purchases of Equity Securities

We did not repurchase any of our common stock during the fourth
quarter of the fiscal year ended December 31, 2009 and we
do not have a formal or publicly announced stock repurchase
program.

We have derived the selected historical consolidated financial
information as of December 31, 2007, 2006 and 2005 and for
the years ended December 31, 2006 and 2005 from our audited
consolidated financial statements, which are not included in
this Annual Report on
Form 10-K.
We have derived the selected historical consolidated financial
information as of December 31, 2009 and 2008 and for the
years ended December 31, 2009, 2008 and 2007 from our
audited consolidated financial statements, which are included
elsewhere in this Annual Report on
Form 10-K.

The selected historical consolidated financial and other
information presented below is condensed and may not contain all
of the information that you should consider. You should read
this information in conjunction with the consolidated financial
statements of us and our predecessor, including, where
applicable, the related notes, and the Managements
Discussion and Analysis of Financial Condition and Results of
Operations section included in this Annual Report on
Form 10-K.

Year Ended December 31,

2009

2008

2007

2006

2005

(In thousands, except for LME price and per share data)

Statement of income (loss) data:

Net sales

$

216,530

$

445,921

$

545,579

$

496,413

$

273,807

Cost of sales (excluding depreciation)

226,171

353,248

373,359

360,181

243,358

Depreciation

15,982

12,797

10,150

8,536

7,179

Selling, general and administrative expenses

17,080

18,184

15,688

31,294

9,630

Total costs and expenses

259,233

384,229

399,197

400,011

260,167

Income (loss) from operations

(42,703

)

61,692

146,382

96,402

13,640

Interest expense

(2,340

)

(1,474

)

(7,589

)

(9,555

)

(9,134

)

Interest and other income

883

1,871

3,037

327

665

Income (loss) before income taxes

(44,160

)

62,089

141,830

87,174

5,171

Income tax provision (benefit)

(16,689

)

22,647

51,147

32,717

2,024

Net income (loss)

$

(27,471

)

$

39,442

$

90,683

$

54,457

$

3,147

Net income (loss) per share:

Basic

$

(0.73

)

$

1.12

$

3.13

$

2.70

$

0.16

Diluted

$

(0.73

)

$

1.12

$

2.85

$

2.01

$

0.12

Balance sheet data (at end of period):

Cash and cash equivalents

$

95,480

$

122,768

$

76,169

$

958

$

553

Working capital

143,455

160,912

150,018

58,863

3,746

Property, plant and equipment, net

191,307

136,141

98,932

63,794

58,081

Total assets

438,262

358,478

314,804

205,706

132,623

Total long-term obligations, less current maturities

255

58

121

58,225

44,741

Stockholders equity

345,417

286,559

242,054

49,994

3,791

Cash flow statement data:

Operating cash flow

$

(6,733

)

$

94,007

$

102,575

$

15,627

$

854

Investing cash flow

(104,924

)

(50,671

)

(45,288

)

(14,249

)

(6,000

)

Financing cash flow

84,369

3,263

17,924

(973

)

3,377

Other data:

Tons of zinc product shipped

118

154

153

158

165

Average LME zinc price(1)

$

0.75

$

0.85

$

1.47

$

1.48

$

0.63

Capital expenditures

37,151

50,671

45,288

14,249

9,123

Depreciation and amortization

16,981

13,463

12,656

9,504

8,380

(1)

Average LME zinc price equals the average of each closing LME
price for zinc on a dollars per pound basis during the measured
period.

MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

You should read the following discussion and analysis in
conjunction with the other sections of this Annual Report on
Form 10-K,
including Business and Selected Financial
Data, as well as our consolidated financial statements,
including the notes thereto. The statements in this discussion
and analysis regarding industry outlook, our expectations
regarding our future performance and our liquidity and capital
resources and other non-historical statements in this discussion
are forward-looking statements. See the Cautionary
Statement Regarding Forward-Looking Statements. Our actual
results may differ materially from those contained in or implied
in any forward-looking statements due to numerous risks and
uncertainties, including, but not limited to, the risks and
uncertainties described in Risk Factors.

Overview

Our
History

We are a leading U.S. producer of zinc and zinc-based
products. Our products are used in a wide variety of
applications, including in the galvanizing of fabricated steel
products and as components in rubber tires, alkaline batteries,
paint, chemicals and pharmaceuticals. We believe that we are the
largest refiner of zinc oxide and PW zinc metal in North
America. We believe we are also the largest North American
recycler of EAF dust, a hazardous waste produced by the steel
mini-mill manufacturing process. We, together with our
predecessors, have been operating in the zinc industry for more
than 150 years.

While we vary our raw material inputs, or feedstocks, based on
cost and availability, we generally produce our zinc products
using nearly 100% recycled zinc, including zinc recovered from
our EAF dust recycling operations. We believe that our ability
to convert recycled zinc into finished products results in lower
feed costs than for smelters that rely primarily on zinc
concentrates. Our EAF dust recycling facilities also generate
service fee revenue from steel mini-mills by providing a
convenient and safe means for recycling their EAF dust.

On December 31, 2009, we purchased all of the issued and
outstanding capital stock of INMETCO from Vale Inco Americas
Inc. The acquisition of INMETCO enhanced our hazardous waste
services platform and diversified our range of capabilities and
products including the recycling of EAF dust and stainless steel
flue dust for the recovery and reuse of a wide range of valuable
metals. It expanded our industrial metals portfolio while
leveraging our key strengths in hazardous waste management and
high temperature metals recovery. Since we acquired INMETCO at
the close of business on December 31, 2009, INMETCO had no
effect on our results of operations other than as discussed
below in Liquidity and Capital Resources.

Economic
Conditions and Outlook

The deterioration in economic conditions that began in the
fourth quarter of 2008 continued at a slower rate through the
second quarter of 2009 and stabilized and began to slightly
improve beginning in the third quarter of 2009. Our results,
particularly in comparison to the first two quarters of 2008,
reflect the negative impact this has had on the markets we
serve, in particular the tire and rubber market, the hot-dipped
galvanizing market and the EAF dust recycling market. Our orders
and shipments also stabilized and began to increase slightly in
the third quarter of 2009. In response to the increase at a time
when our inventories were low, we restarted a fifth furnace at
our Monaca, Pennsylvania smelter in late July and plan to
restart the sixth furnace in the first quarter of 2010. We
maintained the increased level of production for the balance of
the year, however, it remains below 2008 production levels. We
expect the economy to remain weak in 2010 but to continue to
improve slowly in the near term.

Market Price for Zinc. Since we generate the
substantial majority of our net sales from the sale of zinc and
zinc-based products, our operating results depend heavily on the
prevailing market price for zinc. Our principal raw materials
are zinc extracted from recycled EAF dust and other zinc-bearing
secondary materials (purchased feedstock or
purchased feed) that we purchase from third parties.
Costs to acquire and recycle EAF dust, which, during 2009,
comprised approximately 65% of our raw materials, were not
impacted directly by fluctuations in the market price of zinc on
the LME. The price of our finished products is impacted directly
by changes in the market price of zinc, which can result in
rapid and significant changes in our monthly revenues. Zinc
prices experienced a period of general decline between 2000 and
2003, primarily due to increased exports from China and declines
in global zinc consumption. During 2004, however, zinc prices
began to recover, primarily due to increases in global zinc
demand, including in China, and to declines in global production
due to closed or permanently idled zinc mining and smelting
capacity. Zinc prices rose throughout 2005 and 2006 to a
historical high of $2.08 per pound on December 5, 2006 and
fell steadily to $0.47 per pound on December 17, 2008.

In 2008, the LME average zinc price fell approximately 54.6%
from the fourth quarter of 2007. Significantly reduced
construction activity and sharply reduced demand for
automobiles, particularly in the fourth quarter of 2008, brought
on by the global recession caused demand for zinc products to
fall faster than production cuts and announced mine closures.
Zinc prices strengthened in 2009, reflecting not only the
announced mine closures and production cuts that began in the
fourth quarter of 2008 and continued into 2009, but also
increased investor activity in the zinc markets. The LME average
zinc price was $0.53 per pound for the first quarter of 2009,
$0.67 per pound for the second quarter of 2009 and $0.80 per
pound for the third quarter of 2009 and $1.00 per pound for the
fourth quarter of 2009. The average for 2009 was $0.75 per pound
compared to $0.85 per pound for 2008.

To mitigate the effects of any decrease in the LME average zinc
price, we hedged approximately 60% of our expected zinc
production in 2008 and 2009 through the purchase of put options
whereby we would receive a minimum price per pound for the
quantity hedged. We paid a total of $27.5 million for the
options and received $31.9 million in cash as the 2008
options settled. In October 2008, we sold the 2009 put options
for $64.5 million resulting in a $50.3 million gain.
We replaced the 2009 options with similar options having a
strike price of $0.50 per pound for a cost of $10.5 million
to mitigate the effects of any further decrease in the LME
average zinc price. In 2009, we purchased put options for 2010
having a strike price of $0.65 per pound at a cost of
$5.3 million. At the time of the purchase, they represented
approximately 80% of our expected sales volume for 2010. For a
further discussion, see Results from Operating
Activities in the Liquidity and Capital
Resources section.

We pay a percentage of the LME average zinc price for our
purchased feedstock. In the second half of 2008, we began to
aggressively pursue cost reduction initiatives as a result of
the decrease in the price of zinc on the LME. One such
initiative was to reduce the price we pay for our purchased
feedstock expressed as a percentage of the LME zinc price. We
were successful in reducing the price we pay, but were not able
to acquire the same volume of purchased feed that we could at
higher prices. The reduction in availability of purchased feed
along with a decrease in demand in our end markets led us to
move from a six-furnace operation to a four-furnace operation at
our Monaca smelter for several months in 2009. As demand for our
products improved during the second half of 2009, we returned to
a five furnace operation. We returned to a six furnace operation
in March 2010.

Demand for Zinc-Based Products. We generate
revenue from the sale of zinc metal, zinc oxide, zinc- and
copper-based powders, as well as from the collection and
recycling of EAF dust. For the periods of 2004 through mid-year
2008, North American consumption of PW zinc metal (the grade of
zinc metal in which we specialize) and zinc oxide (the
value-added zinc-based product from which we generate the most
net sales on an historical basis) had increased. Because of the
need to perform additional maintenance on key equipment that was
deferred due to our predecessors financial difficulties,
we had not been able to produce at capacity to take full
advantage of this consumption increase. Production of zinc at
our Monaca facility declined, primarily due to this delayed
maintenance on equipment, from approximately 170,000 tons in
2000 to approximately 139,000 tons per year in 2005 and 2006 and
approximately 140,000 in 2007. To meet demand, we purchased and
resold metal to our customers during that period. We began to
reduce these purchases in 2006 and further in 2007.

Demand for our products and services decreased significantly in
the fourth quarter of 2008 due to the severe economic slowdown
and continued into the first quarter of 2009. Demand for our
products increased slightly in the

second, third and fourth quarters of 2009 from the first quarter
of 2009 but is expected to remain at reduced levels in the near
term. Our production of zinc products for 2009 was reduced to
106,000 tons from 137,000 tons for 2008 due to the reduced
demand for our products.

Weekly steel production declined approximately 59.7% during the
fourth quarter of 2008 and continued through the first quarter
of 2009 thereby reducing the amount of EAF dust generated and
the demand for our EAF dust recycling services. Steel production
increased in the second, third and fourth quarters of 2009 from
the first quarter of 2009 but remains at reduced levels compared
to 2008. In response, we suspended our recycling operations
during the December 2008 holiday period and resumed them at a
reduced level in early January 2009. During the first three
quarters of 2009, we operated our recycling operations below
capacity. We did, however, restart one of the kilns at our
Rockwood, Tennessee facility in September of 2009 due to the
increased steel production and the additional EAF dust
associated with the customer contracts we purchased from ESOI in
June of 2009. We restarted the second kiln at that facility in
November of 2009. This brought our recycling operations to
capacity, excluding our smallest and highest cost facility
located in Beaumont, Texas. We do not intend to resume recycling
operations at that facility and have written down the assets to
net realizable value in the third quarter of 2009. We expect to
have the first kiln in production at our Barnwell, South
Carolina facility early in the second quarter of 2010. The
starting date of the second kiln will be dictated by market
conditions.

The table below illustrates historical production and sales
volumes and revenues for zinc products and EAF dust:

Production/EAF Dust Processed

Shipments/EAF Dust Receipts

Revenue/Ton

Year Ended December 31

Year Ended December 31,

Year Ended December 31,

2009

2008

2007

2009

2008

2007

2009

2008

2007

(Tons, in thousands)

(Tons, in thousands)

(In U.S. dollars)

Product:

Zinc Products

106

137

140

118

154

153

$

1,529

$

1,932

$

3,104

EAF Dust

411

519

492

409

507

458

$

80

$

97

$

99

Cost of Sales (excluding depreciation). Our
cost of producing zinc products consists principally of
purchased feedstock, energy, maintenance and labor costs. In
2009, approximately 18% of our operating costs were
feedstock-related, compared to 29% for 2008. The reduction
reflects, in part, our efforts to increase the use of EAF
dust-based feedstock as well as the significant decline in the
LME average zinc price that occurred in 2008. The remaining 82%
of our production costs were conversion-related. A portion of
our conversion costs do not change proportionally with changes
in production volume. Consequently, as volume changes our
conversion cost per ton changes inversely. The decrease in our
production volume in 2009 caused our conversion cost per ton to
increase slightly. Other components of cost of sales include
transportation costs, as well as other manufacturing expenses.
The main factors that influence our cost of sales as a
percentage of net sales are fluctuations in zinc prices,
production and shipment volumes, efficiencies, energy costs, our
ability to implement cost control measures aimed at improving
productivity and our efforts to reduce our conversion costs. Our
purchased feedstock is priced at a discount to the LME.

We value our inventories using the weighted average actual cost
method. Under this method, the cost of our purchased feedstock
generally takes three to four months to flow through our cost of
sales. In an environment of rapidly declining LME average zinc
prices, our inventory cost can exceed the market value of our
finished goods. A significant
lower-of-cost-or-market
(LCM) adjustment can result. In the fourth quarter
of 2008, we recorded an LCM adjustment of $9.0 million. In
the first quarter of 2009, we recorded an LCM adjustment of
$2.8 million. No LCM adjustment was recorded in the second,
third or fourth quarters of 2009.

Selling, General and Administrative
Expenses. Our selling, general and administrative
expenses consist of all sales and marketing expenditures, as
well as administrative overhead costs, such as salary and
benefit costs for sales personnel and administrative staff,
expenses related to the use and maintenance of administrative
offices, other administrative expenses, including expenses
relating to logistics and information systems and legal and
accounting expense, and other selling expenses, including travel
costs. Salary and benefit costs historically have comprised the
largest single component of our selling, general and
administrative expenses. Expenses associated with acquisitions

are also included. Selling, general and administrative expenses
as a percent of net sales historically have been impacted by
changes in salary and benefit costs, as well as by changes in
sales volumes and selling prices.

Trends
Affecting Our Business

Our operating results are and will be influenced by a variety of
factors, including:



LME price of zinc and nickel;



changes in cost of energy and fuels;



gain and loss of customers;



pricing pressures from competitors, including new entrants into
the EAF dust or nickel-bearing waste recycling markets;



increases and decreases in the use of zinc and nickel-based
products;



expansions into new products and expansion of our capacity,
which requires us to incur costs prior to generating revenues;



expenditures required to comply with environmental and other
operational regulations;



access to credit by customers; and



our operational efficiency improvement programs.

We have experienced fluctuations in our sales and operating
profits in recent years due to fluctuations in zinc and energy
prices. Historically, zinc prices have been extremely volatile,
and we expect that volatility to continue. For example, the LME
price of zinc rose from $0.58 per pound on December 31,
2004 to $2.08 per pound on December 5, 2006 and fell to as
low as $0.47 per pound on December 17, 2008. In 2009, the
LME price of zinc ranged from a low of $0.48 per pound on
February 20, 2009 to a high of $1.17 per pound on
December 31, 2009. The average price was $0.75 per pound
for 2009. Changes in zinc pricing have impacted our revenues,
since the prices of the products we sell are based primarily on
LME zinc prices. Changes in zinc pricing have also impacted our
costs of production, since the prices of some of our feedstocks
are based on LME zinc prices. Therefore, since a large portion
of our sales and a portion of our costs are affected by the LME
zinc price, we expect that changing zinc prices will continue to
impact our operations and financial results in the future and
any significant drop in zinc prices will negatively impact our
results of operations. We employ various hedging instruments in
an attempt to reduce the impact of decreases in the selling
prices of a portion of our expected production.

Energy is one of our most significant costs. Our processes rely
on electricity, coke and natural gas in order to operate. Our
freight operations depend heavily on the availability of diesel
fuel, and our Monaca power plant uses coal to generate
electricity for our operations in that facility. Energy prices,
particularly for electricity, natural gas, coal, coke and diesel
fuel, have been volatile in recent years and have exceeded
historical averages. These fluctuations impact our manufacturing
costs and contribute to earnings volatility.

The historically high zinc prices from 2006 into 2008 also made
it attractive for new competitors to enter the EAF dust
recycling market to compete for dust generated by existing EAF
producers as well as anticipated new EAF capacity. The entry of
new competitors could have an adverse impact on our price
realization and market share from EAF dust recycling. For
example, Steel Dust Recycling started up its Waelz kiln facility
located in Alabama in 2008 and The Heritage Group built an EAF
dust processing facility in Arkansas and began operations in
2009.

Our zinc products compete with other materials in many of their
applications, and in some cases our customers may shift to new
processes or products. For example, our zinc is used by steel
fabricators in the hot dip galvanizing process, in which steel
is coated with zinc in order to protect it from corrosion.
Demand for our zinc as a galvanizing material may shift
depending on how customers view the respective merits of hot dip
galvanizing and paint. Our stainless steel customers face
competition from producers of material containing lower levels
of nickel, which could have an impact on the demand for our
nickel-based products. Our ability to anticipate shifts in
product usage and to produce new products to meet our current
and future customers needs will significantly impact our
operating

results. We also face intense competition from regional,
national and global providers of zinc based products, and the
growth of any of those competitors could reduce our market share
and negatively impact our operating results.

Finally, our business is subject to a wide variety of
environmental and other regulations and our operations expose us
to a wide variety of potential liabilities. Our total cost of
environmental compliance at any time depends on a variety of
regulatory, technical and factual issues, some of which cannot
be anticipated. Changes in regulations
and/or our
failure to comply with existing regulations can result in
significant capital expenditure requirements or penalties.

Summary
of Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and
results of operations are based on our consolidated financial
statements, which have been prepared in conformity with
accounting principles generally accepted in the United States of
America. Note B to the audited consolidated financial
statements contained in this Annual Report on
Form 10-K
contains a summary of our significant accounting policies.
Certain of these accounting polices are described below.

Inventories

Inventories, which consist primarily of zinc and nickel bearing
materials, zinc products and supplies and spare parts, are
valued at the lower of cost or market using a moving average
cost method. Raw materials are purchased, as well as produced
from the processing of EAF dust. Supplies and spare parts
inventory used in the production process are purchased.
Work-in-process
and finished goods inventories are valued based on the costs of
raw materials plus applicable conversion costs, including
depreciation and overhead costs relating to associated process
facilities. We recorded the INMETCO inventory at estimated fair
value as of December 31, 2009.

Zinc and nickel are traded as commodities on the LME and,
accordingly, product inventories are subject to price
fluctuations. When reviewing inventory for the lower of cost or
market, we consider the forward prices as quoted on the LME as
of the reporting date in determining our estimate of net
realizable value to determine if an adjustment is required. Our
product revenues are based on the current or prior months
LME average price. The LME average price upon which our product
revenue is based has been reasonably correlated with the forward
LME prices that we use to make the lower of cost or market
adjustments.

Financial
Instruments

The following methods are used to estimate the fair value of our
financial instruments:



Cash and cash equivalents, accounts receivable, notes payable
due within one year, accounts payable and accrued expenses
approximate their fair value due to the short-term nature of
these instruments.

We enter into certain financial swap and financial option
instruments that are carried at fair value. We recognize changes
in fair value within the consolidated statements of operations
as they occur (see Note T to our audited consolidated
financial statements).

We do not purchase, hold or sell derivative financial
instruments unless we have an existing asset or obligation or
anticipate a future activity that is likely to occur and will
expose us to market risk. We use various strategies to manage
our market risk, including the use of derivative instruments to
limit, offset or reduce such risk. Derivative financial
instruments are used to manage well-defined commodity price
risks from our primary business activity. The fair values of
derivative instruments are based upon a comparison of our
internal valuations to the valuations provided by third party
counterparties with whom we have entered into substantially
identical derivative contracts. We also compare their valuations
to ensure that there is an acceptable level of consistency among
them. The valuations utilize forward pricing and an implied
volatility of the underlying commodity as well as interest rate
forwards and are therefore subject to fluctuation based on the
movements of the commodity markets.

We are exposed to credit loss in cases where counter-parties
with which we have entered into derivative transactions are
unable to pay us when they owe us funds as a result of
agreements with them. To minimize the risk of such losses, we
use highly rated counter-parties that meet certain requirements.
We currently do not anticipate

that any of our counter-parties will default on their
obligations to us. Additionally, in October of 2008, we sold the
put options we purchased for 2009 primarily to reduce our
exposure to credit risk with the counter-parties to these
options. The cost of the options was $14.2 million. We
received cash of $64.5 million on the sale resulting in a
pre-tax gain of $50.3 million in 2008. We subsequently
replaced these options with similar options for 2009 having a
lower strike price for the same quantity of tons for a cost of
approximately $10.5 million. In 2009, we purchased put
options for 2010 having a strike price of $0.65 per pound at a
cost of $5.3 million.

Impairment

We review the carrying value of our intangible assets and our
long-lived assets for impairment whenever events or
circumstances indicate that the carrying amounts may not be
recoverable. In 2009, we wrote-down to net realizable value
certain machinery and equipment and supplies inventories by
$1.1 million. The write-down relates primarily to our
Beaumont, Texas recycling facility. In the third quarter of
2009, we made a decision to proceed with the construction of our
Barnwell, South Carolina kiln project and expect to start the
first kiln early in the second quarter of 2010. Market
conditions will dictate when the second kiln will be started.
The Waelz kiln process that will be used at the Barnwell
facility is a lower cost process than the process that was used
at the Beaumont facility, therefore, we do not intend to use the
higher cost capacity at the Beaumont facility.

At December 31, 2009, our market value as indicated by the
closing price of our common stock was $552.5 million. Our
net book value was $345.4 million. We further examined our
assets and found no events that would suggest any additional
impairment. We have no goodwill. In the event we would determine
the carrying amounts would not be recovered, an impairment
charge would be recorded for the difference between the fair
value and the carrying value.

Recently
Issued Accounting Pronouncements

In August 2009, the Financial Accounting Standards Board
(FASB) issued guidance on measuring the fair value
of liabilities. The guidance specifies the techniques to be used
in measuring the fair value of liabilities in circumstances in
which a quoted price in an active market for the identical
liability is not available. It is effective for us on
October 1, 2009. The provisions have been applied to our
consolidated financial statements.

In June 2009, the FASB issued guidance that identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements
of nongovernmental entities that are presented in conformity
with generally accepted accounting principles (GAAP)
in the United States. The guidance will change how we reference
various elements of GAAP when preparing our financial statement
disclosures, but will have no impact on our financial position,
results of operations or cash flows. It is effective for
financial statements issued for interim and annual periods
ending after September 15, 2009.

In June 2009, the FASB issued updated guidance centering around
consolidation of variable interest entities. The updated
guidance includes: a requirement for an enterprise to perform a
analysis to determine whether the enterprises variable
interest or interests give it a controlling financial interest
in a variable interest entity; a requirement for an enterprise
to perform ongoing reassessments of whether it is the primary
beneficiary of a variable interest entity and provides guidance
for determining whether an entity is a variable interest entity.
The update is effective for fiscal years beginning after
November 15, 2009, and for interim periods within the first
annual reporting period. We are currently evaluating the effects
it may have on our consolidated financial statements.

In May 2009, the FASB issued guidance that establishes general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued or are available to be issued. It is effective for
interim and annual periods ending after June 15, 2009. The
update had no significant effect on our consolidated financial
statements.

In December 2007, the FASB issued guidance amending the
disclosure of noncontrolling interests in consolidated financial
statements. Among the requirements of the amendment is the
presentation of ownership interests in subsidiaries held by
parties other than the parent be clearly identified, labeled and
presented in the consolidated statement of financial position
within equity, but separate from the parents equity. The
amendment also requires the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be

clearly identified and presented on the face of the consolidated
statement of income. The amendment is effective as of
January 1, 2009. The provisions have been applied to our
consolidated financial statements.

In December 2007, the FASB issued revised guidance relating to
business combinations. Among the principles and requirements of
the revised guidance is how the acquirer recognizes and measures
in its financial statements the identifiable assets acquired,
liabilities assumed and any noncontrolling interest in the
acquiree. It also requires that acquisition costs generally be
expensed as incurred. It is effective prospectively to business
combinations for which the acquisition date is on or after
January 1, 2009.

Results
of Operations

The following table sets forth the percentages of sales that
certain items of operating data constitute for the periods
indicated.

Year Ended December 31,

2009

2008

2007

Net sales

100.0

%

100.0

%

100.0

%

Cost of sales (excluding depreciation)

104.4

79.2

68.4

Depreciation

7.4

2.9

1.9

Selling, general and administrative expenses

7.9

4.1

2.9

Income (loss) from operations

(19.7

)

13.8

26.8

Interest expense

1.1

0.3

1.4

Other income

.4

0.4

0.6

Income (loss) before income taxes

(20.4

)

13.9

26.0

Income tax provision (benefit)

(7.7

)

5.1

9.4

Net income (loss)

(12.7

)%

8.8

%

16.6

%

Net income (loss) per share

Basic

$

(0.73

)

$

1.12

$

3.13

Diluted

$

(0.73

)

$

1.12

$

2.85

The following table sets forth the activity and the fair values
of our hedging instruments at the reporting dates.

A significant portion of our zinc oxide shipments are priced
based on prior months LME average zinc price.
Consequently, changes in the LME average zinc price are not
fully realized until subsequent periods. The LME average zinc
prices for the most recent eight quarters and the average LME
zinc prices for the year to date as of the end of each quarter
are listed in the table below:

2008

2009

Average LME zinc

Quarter Ended

Quarter Ended

price

March 31

June 30

September 30

December 31

March 31

June 30

September 30

December 31

Quarter

$

1.10

$

0.96

$

0.80

$

0.54

$

0.53

$

0.67

$

0.80

$

1.00

Year-to-date

$

1.10

$

1.03

$

0.95

$

0.85

$

0.53

$

0.60

$

0.67

$

0.75

Year
Ended December 31, 2009 Compared with Year Ended
December 31, 2008 (excluding INMETCO)

Net sales. Net sales decreased
$229.4 million, or 51.4%, to $216.5 million for 2009,
compared to $445.9 million for 2008. The decrease was a
result of a $57.1 million decrease in price realization,
due primarily to a lower average LME zinc price for 2009 versus
2008, a $79.6 million decrease in sales volume reflecting
decreases in shipments across all product lines and a decrease
in EAF dust receipts. Our net sales were further decreased by
$83.3 million relating to our hedging activity and by a
$9.4 million decrease in co-product and miscellaneous
sales. The $83.3 million reduction in net sales relating to
our hedging positions consisted of an unfavorable adjustment of
$12.0 million for 2009 versus a favorable adjustment of
$71.3 million for 2008. The

favorable adjustment in 2008 includes a $50.3 million gain
on the sale of our 2009 zinc put options in October 2008. The
average premium to the LME on zinc products sold for 2009 versus
2008 declined for both zinc metal and zinc oxide. Zinc product
shipments were 118,242 tons for 2009, or 107,470 tons on a zinc
contained basis, compared to 153,936 tons, or 138,901 tons on a
zinc contained basis, for 2008.

The average sales price realization for zinc products on a zinc
contained basis, excluding the effects from the non-cash mark to
market adjustments of our open hedge positions, was $0.84 per
pound for 2009, compared to $1.07 per pound for 2008. The
decrease reflects the sharp decline in the average LME zinc
price in 2008 from an average high of $1.14 per pound for March
of 2008 to an average low of $0.50 per pound for December of
2008. The decline was particularly sharp in the fourth quarter
of 2008, where the average LME zinc price declined from $0.79
per pound for September 2008 to the December low of $0.50 per
pound. The decline was caused by the general economic recession
that began in 2008 and continued into 2009. The average LME zinc
price began to recover in 2009 to an average high of $1.08 per
pound for December of 2009, however, the average price for 2009
was $0.75 per pound, or 11.8% below the average LME zinc price
for 2008.

Net sales of zinc metal decreased $45.6 million, or 31.4%,
to $99.4 million for 2009, compared to $145.0 million
for 2008. The decrease was attributable primarily to a
$19.1 million decrease in price realization and a
$26.5 million decrease in sales volume. The decrease in
price realization was attributable to both a lower average LME
zinc price for 2009 versus 2008 and a lower average premium to
the LME on zinc products sold for 2009 versus 2008. The decrease
in shipment volume reflects the weakened demand for our products
that began in the fourth quarter of 2008 and continued
throughout 2009.

Net sales of zinc oxide decreased $70.3 million, or 46.9%,
to $79.6 million for 2009, compared to $149.9 million
for 2008. The decrease was attributable to a $42.5 million
decrease in sales volume and a $27.8 million decrease in
price realization. The volume decrease was caused primarily by
decreased shipments to our largest tire customers reflecting the
general slowdown in the market that began in 2008 and continued
into 2009. The decrease in price realization reflects the lower
average LME zinc prices for 2009 compared to the average LME
zinc prices for 2008. The average LME zinc prices declined
during 2008 to an average of $0.85 per pound for the 2008
period. They began to recover during 2009 to an average of $0.75
per pound for the 2009 period. The movements in the average LME
zinc prices are partially offset by the lag effect of pricing a
majority of our zinc oxide shipments on prior months
average LME zinc prices. We realized a discount to the LME on
sales of zinc oxide in 2009 versus a premium in 2008, both
reflecting the lag effect and the movements of the average LME
zinc prices from the immediately preceding quarters.

Net sales of zinc and copper-based powder decreased
$4.4 million, or 34.6%, to $8.3 million for 2009,
compared to $12.7 million for 2008. The decrease was
attributable primarily to decreases in prices and shipment
volumes of our copper-based powders.

Revenues from EAF dust recycling decreased $16.5 million,
or 33.6%, to $32.6 million for 2009, compared to
$49.1 million for 2008. Decreased volumes caused revenues
to decrease by $9.5 million. A 17.7% decrease in price
realization on EAF dust recycling fees for 2009 compared to 2008
resulted in a decrease in net sales of $7.0 million. The
decrease reflects, in part, the effects of two temporary items.
The first is an increase in freight allowances to certain
customers for freight diversion charges. These charges were
incurred by those customers in shipping their EAF dust greater
distances to those of our recycling facilities that had not been
temporarily idled during the current economic downturn. As we
resumed operations at our idled facilities, these charges
diminished. The second is related to EAF dust received and
processed in April and May of 2009 that generated no revenue.
This EAF dust was associated with the purchase of the customer
contracts from ESOI in June 2009. EAF dust receipts for 2009
declined 19.4% to 408,967 tons compared to 507,170 tons for
2008, reflecting the sharp drop in steel production that began
in the fourth quarter of 2008 and continued into 2009. According
to data from the American Iron & Steel Institute,
reported steel production for 2009 declined 37.2% from 2008.

Cost of sales (excluding depreciation). Cost
of sales decreased $127.0 million, or 36.0%, to
$226.2 million for 2009, compared to $353.2 million
for 2008. As a percentage of net sales, cost of sales was 104.4%
for 2009, compared to 79.2% for 2008. The change in percentage
reflects the net effect of changes in the average LME zinc
prices on our net sales and cost of sales. Changes in the
average LME zinc price are restricted to the purchased feed
component of our cost of sales; therefore any changes in the
average LME zinc price have a smaller effect on our

cost of sales than on our net sales. The change in percentage
also reflects the effect of decreased production on our cost per
ton. Excluding the effect the hedges had on our net sales, cost
of sales would have been 99.0% and 94.3% of net sales in fiscal
2009 and 2008, respectively.

The cost of zinc material and other products sold decreased
$129.1 million, or 38.0%, to $210.6 million for 2009,
compared to $339.7 million for 2008. The decrease was
primarily the result of a $63.4 million decrease in
shipment volume across all major product lines, a
$43.1 million decrease in the cost of products shipped and
an $27.6 million decrease in recycling and other costs. The
decreases reflect lower feed costs and lower conversion costs
for 2009 compared to 2008. Purchased feed costs were reduced by
$50.5 million, reflecting both the lower LME average zinc
price as well as the lower price of purchased feeds we pay
expressed as a percentage of the LME. The reduction in our
purchased feed costs also reflects a 33.0% reduction in the
number of tons of purchased feed consumed and a reduction in the
percentage of purchased feed used in our feed mix. The cost of
zinc material and other products sold for 2009 include a
$1.0 million write-down of certain machinery and equipment
and supplies inventories primarily at our Beaumont, Texas
recycling facility. Our cost of zinc material and other products
sold for 2008 include a $9.0 million LCM adjustment
relating to a write-down of inventory values during the fourth
quarter.

Our conversion costs were $56.3 million lower in 2009 than
in 2008. The reduction reflects a $24.2 million decrease in
utility costs, a $9.4 million reduction in labor costs and
a $12.0 million reduction in maintenance and supplies
costs. These reductions were driven primarily by our cost
reduction initiatives along with lower production levels for
2009 as compared to 2008 in response to the economic slowdown
that accelerated in the fourth quarter of 2008 and continued
into 2009. Although our conversion costs declined, a portion of
them do not change proportionally with changes in volume.
Therefore our conversion cost per ton increased as the decline
in our production occurred faster than the decline in our
conversion costs through the first three quarters of 2009. The
increase was partially offset in the fourth quarter of 2009 as
our conversion costs continued to decline compared to those in
the fourth quarter of 2008 while our production in the fourth
quarter of 2009 increased relative to the fourth quarter of 2008.

The cost of EAF dust services increased $2.0 million, or
14.8%, to $15.5 million for 2009, compared to
$13.5 million for 2008 primarily reflecting an increase in
transportation costs partially offset by a reduced volume of EAF
dust received.

Depreciation. Depreciation expense increased
$3.2 million, or 24.9%, to $16.0 million for 2009,
compared to $12.8 million for 2008. The increase reflects
the increased capital expenditures during the twelve months
ended December 31, 2009.

Selling, general and administrative
expenses. Selling, general and administrative
expenses decreased $1.1 million to $17.1 million for
2009, compared to $18.2 million for 2008. The decrease
reflects primarily a reduction in labor and benefit costs of
$2.7 million resulting from a workforce reduction,
partially offset by a $1.2 million increase in legal and
professional fees reflecting costs incurred related to
acquisition activity in 2009.

Interest expense. Interest expense increased
$0.8 million to $2.3 million for 2009, compared to
$1.5 million for 2008. The increase reflects accretion
expense of $0.4 million associated with the liability we
incurred to purchase the ESOI EAF dust contracts in June of
2009. The increase also reflects higher fees under our credit
facility during the second half of the year and the write-off of
the remaining deferred finance charges associated with our
credit facility, which we terminated in December of 2009. The
facility was originally scheduled to expire in July 2010.

Interest and other income. Interest and other
income decreased $1.0 million for 2009. The decrease was
attributable primarily to a $1.3 million decrease in
interest earned on excess cash in a lower interest rate
environment and a $0.3 million decrease in scrap sales
partially offset by a $0.6 million decrease in losses
related to asset disposals.

Income tax (benefit) provision. Our income tax
benefit was $16.7 million for 2009, compared to a provision
for income taxes of $22.6 million for 2008. Our effective
tax rates were (37.8%) for 2009 and 36.5% for 2008. The tax rate
for the nine months ended September 30, 2009 was (33.3%).
The significant increase in rates was primarily the result of
recently enacted tax law changes in the fourth quarter of 2009
as well as to changes in estimates and corrections to certain
deferred tax items. The changes will allow us to carry back the
2009 losses five years versus

two years, which reduces the negative impact of losing the
domestic production activities deduction benefit in earlier
years.

Net income (loss). For the reasons stated
above, we incurred a net loss of $27.5 million for 2009,
compared to net income of $39.4 million for 2008.

Year
Ended December 31, 2008 Compared with Year Ended
December 31, 2007

Net sales. Net sales decreased
$99.7 million, or 18.3%, to $445.9 million for 2008
compared to $545.6 million for 2007. The net decrease was
attributable to a $181.5 million decrease in price
realization and a $3.7 million decrease in co-product and
miscellaneous sales. Partially offsetting our decreases in net
sales was a $9.0 million net increase in sales volume
reflecting increases in shipments of metal and powders and in
EAF dust receipts and a decrease in shipments of zinc oxide.
Additionally, our hedging activity increased our net sales by
$76.5 million. The average premium to the LME on zinc
products sold for 2008 versus 2007 declined for zinc metal but
improved for zinc oxide. Zinc product shipments for 2008 were
153,936 tons, or 138,901 on a zinc contained basis, compared to
152,745 tons, or 136,698 tons on a zinc contained basis for 2007.

The average sales price realization for zinc products on a zinc
contained basis, excluding the effects from the settlement of
our put options and the non-cash mark to market adjustments of
our open hedge positions, was $1.07 per pound for 2008 compared
to $1.73 per pound for 2007. The decrease in 2008 reflected the
$0.62 per pound, or 42.2%, decline, in the average LME zinc
price from 2007. The decline was particularly sharp in the
fourth quarter of 2008, when it declined $0.26 per pound, or
41.9% of the total change from 2007. The decline reflected the
general economic slowdown that began in December 2007 and that
continued through 2008.

Our hedging positions partially mitigated the fluctuations in
our revenues caused by the changing LME zinc prices. For 2008,
our revenues were increased by favorable non-cash mark to market
adjustments of $11.2 million on our hedge positions. In
October of 2008, our revenues were further increased by a
$50.3 million gain on the sale of our 2009 zinc put
options. We received $64.5 million in cash from the sale.
Finally, our revenues were increased for option hedge positions
that settled during the year for $9.8 million in excess of
their previously recorded market values. We received
$29.5 million in cash payments at settlement. For 2007, our
revenues were decreased by an unfavorable non-cash mark to
market adjustment of $5.2 million on our hedge positions.
We made $1.3 million in cash payments at settlement.

Net sales of zinc metal decreased $81.4 million, or 36.0%,
to $145.0 million for 2008 compared to $226.3 for 2007. The
decrease was primarily attributable to a $101.0 million
decrease in price realization reflecting the 42.2% decline in
the LME average zinc price in 2008 from 2007. Partially
offsetting the decrease in price realization was a
$19.6 million increase in shipment volume. The sales volume
increase was driven by an increase in tons shipped to our
customers in the brass and battery manufacturing related
businesses as well as the strong hot-dipped galvanizing market
through the third quarter of 2008. Shipments slowed
significantly in the fourth quarter as the hot-dipped
galvanizing and brass markets softened due to weakened demand
for our customers products and services.

Net sales of zinc oxide decreased $94.7 million, or 38.7%,
to $149.9 million for 2008 compared to $244.6 million
for 2007. The decrease was attributable to a $79.3 million
decrease in price realization due primarily to lower average LME
zinc prices in 2008 versus 2007 partially offset by the lag
effect of pricing a majority of our zinc oxide shipments on
prior months average LME zinc prices. The average LME zinc
price was $0.85 per pound for 2008 compared to $1.47 per pound
for 2007. We realized a premium to the LME on sales of zinc
oxide in both 2008 and 2007, reflecting the lag effect and the
movements of the average LME zinc prices from the immediately
preceding quarters. A $15.4 million decrease in shipment
volume further reduced our net sales for 2008. The volume
decrease was mainly caused by decreased shipments to our largest
tire customers reflecting the general slowdown in the market,
particularly in the fourth quarter.

Net sales of zinc and copper-based powder decreased
$0.2 million, or 1.6%, to $12.7 million for 2008,
compared to $12.9 million for 2007. This decrease was
attributable to decreases in both shipment volumes and price
realization.

Revenues from EAF dust recycling increased $3.9 million, or
8.6%, to $49.1 million for 2008 compared to
$45.2 million for 2007. Increased volume led to an increase
in revenues of $4.8 million. The increased volume

primarily reflected increased steel production by our EAF
customers through the third quarter of 2008. Steel production
declined significantly in the fourth quarter reflecting the
general economic slowdown. EAF dust revenues for 2008 were based
on 507,170 tons versus 458,052 tons for 2007. A 1.9% decrease in
price realization reduced revenues by $1.0 million.

Cost of sales (excluding depreciation). Cost
of sales decreased $20.2 million, or 5.4%, to
$353.2 million for 2008, compared to $373.4 million
for 2007. As a percentage of net sales, cost of sales was 79.2%
for 2008, compared to 68.4% for 2007. The change in percentage
reflected the net effect of changes in the average LME zinc
prices on our net sales and cost of sales. Changes in the
average LME zinc price are restricted to the purchased feed
component of our cost of sales; therefore any changes in the
average LME zinc price have a smaller effect on our cost of
sales than on our net sales. Excluding the effect the hedges had
on our net sales, cost of sales would have been 94.3% and 67.8%
of net sales in 2008 and 2007, respectively.

The cost of zinc material and other products sold decreased
$27.3 million, or 7.4%, to $339.7 million for 2008,
compared to $367.0 million for 2007. The decrease was
primarily a result of a net $34.7 million decrease in the
cost of produced metal, oxide and powders shipped in 2008
compared to 2007, a $4.6 million decrease in cost of
brokered metal shipped and a $9.7 million decrease in the
shipment volume of zinc oxide. These decreases were partially
offset by a $15.4 million increase in shipment volume of
produced metal and a $8.0 million increase in our recycling
and other costs. The $34.7 million cost decrease was driven
primarily by a $62.3 million decrease in purchased feed
costs partially offset by a $17.8 million increase in
conversion costs. In 2008, we reduced the number of purchased
feed tons consumed by 15.7%. We also reduced the percentage of
purchased feed used in our feed mix to 36.2% in 2008 from 40.8%
in 2007. Our smelter recovery in 2008 improved to 92.5% from
90.2% for 2007. We consumed 4.8% less feedstock in 2008 than
2007 partly in response to our efforts to reduce our usage of
purchased feed and partly due to our reduced production level
resulting from the reduced demand for our products. Our
purchased feed costs were further reduced by the decline in the
LME average zinc price compared to 2007.

The increase in our conversion costs reflected a
$10.0 million increase in our energy costs, of which
$6.3 million related to an increase in the cost of coke.
Our cost of sales also included a $9.0 million LCM
adjustment relating to a write-down of inventory values during
the fourth quarter, and costs totaling $2.1 million
relating to the
start-up of
the new kiln placed in service in January 2008 at our Rockwood,
Tennessee facility and an unplanned outage at the power plant
located at our Monaca, Pennsylvania facility.

The cost of EAF dust services increased $7.1 million, or
111.7%, to $13.5 million for 2008, compared to
$6.4 million for 2007. The increase was the result of a
$6.4 million increase in the cost of the services provided
reflecting primarily an increase in fuel and transportation
costs and a $0.7 million increase in volume of EAF dust
received.

Depreciation. Depreciation expense increased
$2.6 million, or 26.1%, to $12.8 million for 2008
compared to $10.2 million for 2007. The increase reflected
the increase in assets placed in service during 2008, most
notably the kiln expansion project at our Rockwood, Tennessee
facility which was completed and placed into service in January
2008.

Selling, general and administrative
expenses. Selling, general and administrative
expenses increased $2.5 million to $18.2 million for
2008, compared to $15.7 million for 2007. The increase
reflected primarily increased legal and audit expenses and other
costs associated with our public company status, namely
activities associated with our Sarbanes-Oxley implementation,
directors fees and public company filing fees not incurred
for the full year of 2007 and an increase in bad debt expense.
Non-cash compensation expense included in selling, general and
administrative expenses was $1.7 million and
$1.4 million for 2008 and 2007, respectively.

Interest expense. Interest expense decreased
$6.1 million to $1.5 million for 2008, compared to
$7.6 million for 2007. The decrease was attributable
primarily to lower debt levels in 2008. Substantially all of our
debt was repaid in the second and third quarters of 2007 in
conjunction with a private placement of our common stock in
April 2007 and the initial public offering of our common stock
in August 2007.

Interest and other income decreased $1.2 million for 2008.
The decrease was attributable primarily to a decrease in
interest earned on excess cash during 2008 and a
$0.7 million loss on disposal of miscellaneous assets in
2008.

Income tax provision. Our income tax provision
was $22.6 million for 2008, compared to $51.1 million
for 2007. Our effective tax rates were 36.5% for 2008 and 36.1%
for 2007.

Net income. For the reasons stated above, our
net income decreased to $39.4 million for 2008, compared to
$90.7 million for 2007.

Liquidity
and Capital Resources

We finance our operations, capital expenditures and debt service
primarily with funds generated by our operations. We believe the
combination of our cash balance, our cost reduction initiatives,
our hedging positions, and our cash generated from operations
will be sufficient to satisfy our liquidity and capital
requirements for the next twelve months. Our cash is not
restricted with the exception of $31.5 million related to
the following three items. The first is the New Markets Tax
Credit (NMTC), the second is the financial assurance
associated with the ESOI customer contracts purchased by us and
the third is the collateral for our new letters of credit, all
of which are described below. The portion that is unrestricted
is available to satisfy our liquidity and capital requirements.
We believe our cash balance is sufficient to satisfy our
liquidity and capital requirements for the next twelve months.
We believe we could obtain a new credit facility and reduce our
capital requirements, if necessary, to maintain liquidity. Our
ability to continue to fund these requirements may be affected
by industry factors, including LME zinc prices, and by general
economic, financial, competitive, legislative, regulatory and
other factors discussed in this report.

Year
Ended December 31, 2009

Our balance of cash and cash equivalents at December 31,
2009, excluding the $31.5 million of restricted cash, was
$95.5 million, a $27.3 million decrease from the
December 31, 2008 balance of $122.8 million. In
December 2008, we purchased $40.0 million of commercial
paper from a major U.S. bank to mitigate the risk
associated with the concentration of our cash balance with a
single U.S. bank. In January 2009, we purchased an
additional $20.0 million of commercial paper with a second
major U.S. bank. The commercial paper carried interest
rates ranging from 0.3% to 0.4% and had various maturity dates
through July 7, 2009. A portion was reinvested in new
commercial paper with maturity dates through August 10,
2009 with similar interest rates. The funds were not reinvested
in commercial paper as they matured. The commercial paper was
guaranteed by the Federal Deposit Insurance Corporation
(FDIC) through its Temporary Liquidity Guarantee
Program (TLGP). The goal of the TLGP is to preserve
confidence in the U.S. banking system and to restore
liquidity to the credit markets. The program covered eligible
debt issued by financial institutions between October 13,
2008 and June 30, 2009 with the guarantees expiring no
later than June 30, 2012.

In June 2009, we began purchasing certificates of deposit with
maturities ranging from four weeks to thirteen weeks and having
interest rates ranging from 0.3% to 1.10%. We purchased them
through the Certificate of Deposit Account Registration Service
(CDARS). CDARS allows a depositor to keep large
deposits federally insured by conveniently investing in
certificates of deposit in amounts covered by the FDIC. Under
the program the depositor invests one amount with a financial
institution participating in the CDARS program. That financial
institution purchases certificates of deposit from other
participating financial institutions in amounts covered by the
FDIC. As they matured, a portion of the funds were reinvested in
certificates of deposit through CDARS having similar maturities
and interest rates. The remaining funds were invested in a money
market demand account. As of December 31, 2009, we had
$20.0 million invested in certificates of deposit having
four week maturities and an interest rate of 0.4% and
$30.1 million invested in the money market demand account
with an interest rate of 1.25%. The certificates of deposit
matured in January 2010 and the funds were invested in the money
market demand account.

In December 2009, we invested $35.0 million in a liquidity
management fund through a U.S. financial institution. The
fund invests in obligations guaranteed by the U.S. Treasury
only and does not invest in repurchase agreements. The fund
seeks to provide high levels of current income, liquidity and
stability of principal. We expect to continue to invest our cash
in secured positions.

In June 2009, we purchased the customer contracts related to the
EAF dust collection business of ESOI for $11.7 million. We
expect the cost of the zinc units recovered from the EAF dust
under these contracts will be lower than the cost of zinc units
we would need to purchase. As part of the purchase, we obtained
a standard agreement

from ESOI not to compete in the EAF dust collection business for
a period of 17 years. We paid $3.0 million on the
effective date with the balance of the purchase price to be paid
in a series of annual fixed and quarterly variable payments
through 2025. The payments have been discounted using rates of
approximately 11.8% and 16.0% for the fixed and variable
payments, respectively. At December 31, 2009 the net
present value of the payments was approximately
$7.6 million, of which $1.7 million was recorded as a
current liability and $5.9 million was recorded as a
non-current liability. We are required to provide security in
the amount of $4.0 million for the fixed payment stream
until December 31, 2010 at which time the amount of the
security will be reduced to $2.5 million. On July 30,
2009 we placed $4.0 million into an escrow account to
satisfy the requirement.

On June 4, 2009 and again on June 30, 2009, we amended
our financing agreement. The June 4, 2009 amendment enabled
us to participate in the New Markets Tax Credit Program
(NMTC) to help us fund our expansion project in
Barnwell, South Carolina. The June 4, 2009 amendment also
increased our borrowing costs and increased the threshold below
which we would be required to comply with certain financial
covenants under our revolving credit facility (the
Revolver). The June 30, 2009 amendment
primarily reduced the amount of borrowing available to us under
the Revolver by $30.0 million, from $75.0 million to
$45.0 million. In July 2009, we requested an advance on our
Revolver which was not honored by the agent, resulting in the
lender being in default under our financing agreement. The
default was cured shortly afterward. On November 1, 2009,
the lender voluntarily filed a prepackaged plan of
reorganization with the U.S. Bankruptcy Court for the
Southern District of New York. On December 11, 2009 we
terminated the financing agreement, which was scheduled to
expire on July 15, 2010. We expect the termination to
reduce our financing costs in 2010 by approximately
$0.2 million in unused line of credit fees and collateral
management fees. We believe that we currently have adequate
liquidity based on our expected cash flow and our cash on-hand
and will be able to obtain a new financing agreement with a
revolving credit facility, if necessary.

The letters of credit outstanding under the Revolver were
cancelled in October and December 2009 and replaced with letters
of credit in the amount of $14.7 million. We issued an
additional letter of credit in the amount of $5.9 million
to satisfy the environmental financial assurance requirements we
assumed in connection with our purchase of INMETCO. As of
December 31, 2009, we had $20.6 million in letters of
credit outstanding that were backed by $21.6 million in
restricted cash.

On June 8, 2009 we completed a financing arrangement under
the NMTC program to help us fund our expansion project in
Barnwell, South Carolina. The arrangement provides
$5.9 million of NMTC funds in the form of equity and loans
to be used for completion of development of the site and
construction of buildings and other real property. The equity
portion may be purchased by us at the end of seven years for a
nominal amount. The equity holders are entitled to receive
guaranteed annual payments equal to 2% of their investment. The
cash underlying the NMTC equity is currently being held in
escrow and will be released upon completion of the project site
development, which is anticipated to be in the next twelve
months. The NMTC program is designed to encourage investment in
underserved areas and is part of the Community Renewal Tax
Relief Act of 2000.

Cash
Flows from Operating Activities

Our operations used a net $6.7 million in cash for 2009,
reflecting the dramatic economic downturn that began in the
fourth quarter of 2008 and the overall economic weakness in
2009. The LME average price of zinc during 2009 was lower than
2008, however it increased 115.8% during 2009 from a low of
$0.50 per pound for December 2008 to a high of $1.08 for
December 2009. This use of cash by operating activities included
the purchase of put options for 2010 at a cost of
$5.3 million and the first scheduled annual fixed payment
under the ESOI acquisition of $1.4 million.

Our investment in working capital at December 31, 2009,
excluding the acquisition of INMETCO, decreased
$31.2 million, or 19.4%, from December 31, 2008. The
decrease includes decreases in cash and cash equivalents,
inventory and deferred income taxes, partially offset by
increases in accounts receivable and in prepaid expenses and
other current assets.

The decrease in cash and cash equivalents primarily reflects the
acquisitions of INMETCO and the EAF dust contracts from ESOI,
capital spending and increases in restricted cash, partially
offset by the successful underwritten public offering of our
stock in September of 2009. The reduction in inventory reflects
decreases of 64.8%

and 65.5% in the cost and volume, respectively, of zinc-based
purchased feeds inventory and decreases of 92.0% and 93.2% in
the cost and volume, respectively, of our zinc-based work in
process inventory. The cost of our zinc-based finished goods
inventory declined 3.6% versus a 31.7% decline in volume,
reflecting lower production and sales volumes for 2009 partially
offset by the increase in the LME average price of zinc in 2009.

The increase in prepaid expenses and other current assets
consists primarily of a $20.4 million income tax
receivable, partially offset by an unfavorable, non-cash fair
value adjustment of $11.4 million on our zinc put options.
We purchased the put options in October of 2008 and throughout
2009 to protect our cash flows from declines in the LME price of
zinc. The options settle monthly. We are entitled to receive the
amount, if any, by which the option strike price exceeds the
average LME price of zinc during the preceding month. During
2009, the average LME zinc price exceeded the strike price,
consequently the options purchased for 2009 settled with no
payment due to us. The strike prices were $0.50 per pound for
the options expiring in 2009 and are $0.65 per pound for the
options expiring in 2010.

Cash
Flows from Investing Activities

Cash used in investing activities was $104.9 million for
2009. Capital expenditures were $37.2 million and included
$25.4 million related to the construction of two kilns in
South Carolina, an increase of $31.5 million in restricted
cash, $3.0 million in expenditures related to the purchase
of the EAF dust collection business of ESOI and
$33.2 million for the acquisition of INMETCO.

Our funding of restricted cash is related to the NMTC financing
of the development of the South Carolina project site, a
$4.0 million deposit into an escrow account as security for
the fixed portion of the payments in connection with the ESOI
purchase and $21.6 million related to letters of credit we
issued in September and December of 2009. The projected
completion date of the first South Carolina kiln is currently
the second quarter of 2010. The development of the South
Carolina project site is expected to be completed and the
$5.9 million in restricted cash released within the next
twelve months. The letters of credit were issued to replace the
letters of credit outstanding under our credit facility, which
we cancelled in December of 2009, and to satisfy the
environmental financial assurance requirement we assumed in
connection with our purchase of INMETCO.

We funded capital expenditures with cash on hand. Our current
capital expenditure plan for 2010 is approximately
$45.0 million, of which approximately $25.0 million
will be related to the construction of the new kilns in South
Carolina.

Cash
Flows from Financing Activities

Our financing activities for 2009 provided a net
$84.4 million in cash. In September we successfully
completed an underwritten public offering of
8,050,000 shares of common stock at $10.50 per share,
including 1,050,000 shares sold pursuant to the
underwriters exercise of their over-allotment option to
purchase additional shares. We received approximately
$79.8 million in net proceeds from the offering, after
deducting underwriting discounts and commissions and offering
expenses.

The financing received in connection with the South Carolina
project through the NMTC program totaled $5.9 million and
consisted of an equity contribution of $5.6 million, of
which $0.3 million relates to our commitment to purchase
the equity at the end of the NMTC programs seven year
investment period in the project. Additionally, a portion of the
$5.9 million in financing consisted of a seven-year
$0.3 million loan. The commitment is classified as a
non-current liability and the note payable is classified as
long-term debt on our consolidated balance sheet. We incurred
$0.8 million in equity issuance costs which were deducted
from the equity proceeds. The net proceeds were
$4.5 million.

Year
Ended December 31, 2008

Our balance of cash and cash equivalents at December 31,
2008 was $122.8 million, a $46.6 million increase from
the December 31, 2007 balance of $76.2 million. In
December 2008, we purchased $40.0 million of commercial
paper from a major U.S. bank to mitigate the risk
associated with the concentration of our cash balance with a
single U.S. bank. The commercial paper carried an interest
rate of approximately 0.3% and had various

maturity dates through March 16, 2009. In January 2009, we
purchased an additional $20.0 million of commercial paper
with a second major U.S. bank having similar interest rates
but with maturities extending to July 7, 2009. As of
February 28, 2009, $20.0 million of the December 2008
purchase had matured and was re-invested in commercial paper of
a major finance company with maturities extending to
May 13, 2009. The debt was guaranteed by the Federal
Deposit Insurance Corporation (FDIC) through its
Temporary Liquidity Guarantee Program (TLGP). The
goal of the TLGP is to preserve confidence in the
U.S. banking system and to restore liquidity to the credit
markets. The program covers eligible debt issued by financial
institutions between October 13, 2008 and June 30,
2009 with the guarantees expiring no later than June 30,
2012. We expect to continue to invest our cash in secured
positions.

Our credit facility consists of a $75.0 million revolving
credit facility which expires in 2010. Currently we do not
expect to encounter difficulties in renewing the facility,
although it may be at higher financing costs. At
December 31, 2008, we had no outstanding borrowings under
the revolver and had $35.1 million in availability. We are
subject to various financial covenants in our credit facility.
If the average net availability for any consecutive ten day
period is less than $5.0 million, then our consolidated
senior leverage ratio must be not higher than 5.50 to 1.00, our
consolidated fixed charge coverage ratio must be not less than
1.00 to 1.00, and for each quarter, our EBITDA for the previous
twelve months must be higher than $13.4 million. Finally,
if the average net availability for the calendar month of
December of each respective year is less than
$30.0 million, then our capital expenditures for 2008, 2009
and 2010 may not exceed $120.0 million,
$70.0 million and $25.0 million, respectively. At
December 31, 2008, we were in compliance with all covenants
under the agreement governing the credit facility.

At December 31, 2008, we had put options in place for
approximately 90,000 tons of zinc to protect our cash flows in
2009 in the event the average LME zinc price falls below $0.50
per pound in any given month. An equal portion of the put
options expire each month in 2009. See Cash Flows from
Operating Activities and Note T of our Consolidated
Financial Statements for a more detailed discussion of our put
options.

Cash
Flows from Operating Activities

Our operations generated a net $94.0 million in cash for
2008. Net income and non-cash items totaled $56.3 million.
Although the LME average price of zinc during 2008 declined
53.2% from the average level for the month of December 2007, it
was at historically high levels during the first nine months of
2008 and contributed to our positive cash flow from operations
for the period. The decline in the LME average price of zinc
during the period contributed to the decrease in accounts
receivable and inventory. In addition, a decrease in finished
goods inventory tons contributed to further reductions in
inventory.

Our investment in working capital increased 7.3% to
$160.9 million at December 31, 2008, from
$150.0 million at December 31, 2007. The most notable
changes in working capital were the $46.6 million increase
in cash and cash equivalents, a $22.7 million decrease in
inventory, a $21.0 million decrease in accounts receivable
and a $2.2 million decrease in accounts payable. The
decrease in the inventory was caused largely by a reduction in
the raw materials and finished goods inventory values. The
reduction in the raw materials inventory was caused primarily by
a 71.8% reduction in the cost of purchase feeds inventory and a
corresponding 45.7% reduction in tons on hand. The reduction in
the finished goods inventory reflected a 54.7% reduction in the
cost of finished goods inventory and a 19.6% reduction in the
corresponding tons of inventory on hand. The cost reduction in
the finished goods inventory primarily reflected the effect of
lower average LME zinc prices on the purchased feed component of
our finished goods inventory and the reduced market value. The
cost reduction in both the raw material and finished inventories
also reflected a $9.0 million LCM adjustment.

In December 2007, we purchased put options for 2008 for
approximately 90,000 tons of zinc, (7,500 tons monthly), or
approximately 60% of our anticipated 2008 sales volume, to
protect our cash flows from declines in the LME price for zinc.
The cost of these options was approximately $13.3 million.
The options settled on a monthly basis, and in each settlement
we were entitled to receive the amount, if any, by which the
option strike price, set at $1.00 per pound, exceeded the
average LME price for zinc during the preceding month. The
contracts settled for $31.9 million in 2008, of which we
received $24.4 million in 2008 and the remainder in January
2009.

Similar put options for 90,000 tons (7,500 tons monthly) were
purchased during the first four months of 2008 for each of the
12 months of 2009 with a $0.90 per pound strike price, for
a cost of approximately $14.2 million. In

October of 2008, we sold the put options primarily to reduce our
exposure to credit risk with the counter-parties to these
options. We received cash of $64.5 million on the sale
resulting in a pre-tax gain of $50.3 million in 2008, of
which $19.7 million was recognized in the first nine months
and $30.6 million was recognized in the fourth quarter. We
subsequently purchased similar options having a strike price of
$0.50 per pound for 2009 for the same quantity of tons for a
cost of approximately $10.5 million. See Note T of our
Consolidated Financial Statements.

Cash
Flows from Investing Activities

Cash used in investing activities was $50.7 million for
2008. A significant portion of the expenditures,
$29.4 million, related to capacity expansion and cost
reduction projects, of which $14.8 million related to the
construction of two kilns in South Carolina. The projected
completion date of these newest kilns is currently the first
quarter of 2010 but could be deferred depending on market
conditions. Although our credit facility imposes certain limits
on capital spending, such limits did not preclude us from
funding any of our currently planned projects. We funded capital
expenditures with cash provided by operations and cash from our
initial public offering.

Cash
Flows from Financing Activities

Our financing activities for 2008 provided a net
$3.3 million in cash resulting from the exercise of
employee stock options and the related tax benefit. During the
period, options underlying approximately 478,000 shares
were exercised at an average exercise price of $2.10 per share.

Contractual
Obligations and Commercial Commitments

The following table summarizes our contractual obligations and
commitments as of December 31, 2009:

Payments Due by Period

Total

Less Than 1 Year

1-3 Years

3-5 Years

More Than 5 Years

(Dollars in millions)

Long-term debt obligations (excluding interest)

$

0.3

$



$



$



$

.3

Purchase obligations

19.0

19.0







Operating lease obligations

16.0

4.2

6.1

3.9

1.8

Executive compensation

3.2

1.6

1.6





Other long-term liabilities

17.4

1.7

2.3

2.2

11.2

Total

$

55.9

$

26.5

$

10.0

$

6.1

$

13.3

Off-Balance
Sheet Arrangements

Our off-balance sheet arrangements include operating leases and
letters of credit. As of December 31, 2009, we had letters
of credit outstanding in the amount of $20.6 million to
collateralize self-insured claims for workers compensation
and other general insurance claims and closure bonds for our two
facilities in Pennsylvania. These letters of credit are covered
by $21.6 million in restricted cash.

Inflation

Inflation can affect us primarily as it relates to material
purchases, energy, labor and other costs. We do not believe that
inflation has had a material effect on our business, financial
condition or results of operations in recent years. However, if
our costs were to become subject to significant inflationary
pressures, either as described above or otherwise, we may not be
ably to fully offset such higher costs through price increases.

Seasonality

Due in large part to the diverse end-markets into which we sell
our products and services, our sales are generally not impacted
by seasonality with the exception of a slight reduction in
demand in the fourth quarter of the year as some customers
reduce production during the period.

In the ordinary course of our business, we are exposed to
potential losses arising from changes in and the prices of zinc,
lead, natural gas and coal. We have historically used derivative
instruments, such as swaps, put options and forward purchase
contracts to manage the effect of these changes. When we use
forward contract hedging instruments to reduce our exposure to
rising energy prices, we are limited in our ability to take
advantage of future reductions in energy prices, because the
hedging instruments require us to exercise the hedging
instrument at the settlement date regardless of the market price
at the time. We have also used put options to reduce our
exposure to future declines in zinc prices. We have entered into
arrangements hedging a portion of our exposure to future changes
in the prices of zinc and lead for 2009 and 2008.

Our risk management policy seeks to meet our overall goal of
managing our exposure to market price risk, particularly risks
related to changing zinc prices. All derivative contracts are
held for purposes other than trading and are used primarily to
mitigate uncertainty and volatility of expected cash flow and
cover underlying exposures. We are exposed to losses in the
event of non-performance by the counter-parties to the
derivative contracts discussed below, as well as any similar
contracts we may enter into in future periods. Counter-parties
are evaluated for creditworthiness and risk assessment both
prior to our initiating contract activities and on an ongoing
basis.

Commodity
Price Risk

Our business consists principally of the sale of zinc metal and
other zinc-based products. As a result, our results of
operations are subject to risk of fluctuations in the market
price of zinc. While our finished products are generally priced
based on a spread to the price of zinc on the LME, our revenues
are impacted significantly by changes in the market price of
zinc. Changes in zinc prices will also impact our ability to
generate revenue from our EAF recycling operations as well as
our ability to procure raw materials. In addition, we consume
substantial amounts of energy in our zinc production and EAF
dust recycling operations, and therefore our cost of sales is
vulnerable to changes in prevailing energy prices, particularly
natural gas, coke and coal.

In December 2007, we purchased put options for 2008 for a
financial hedge for approximately 90,000 tons of zinc, (7,500
tons monthly), or approximately 60% of our anticipated 2008
sales volume. The cost of these options was approximately
$13.3 million. The options settled on a monthly basis, and
in each settlement we were entitled to receive the amount, if
any, by which the option strike price, set at $1.00 per pound
for the duration of 2008, exceeded the average LME price for
zinc during the preceding month. Similar put options for 90,000
tons, (7,500 tons monthly) were purchased in 2008 for each of
the 12 months of 2009 with a $0.90 per pound strike price,
for a cost of approximately $14.2 million.

In October of 2008, we sold the put options we purchased for
2009 primarily to reduce our exposure to credit risk with the
counter-parties to these options. We received cash of
$64.5 million on the sale resulting in a pre-tax gain of
$50.3 million in 2008, of which $19.7 million was
recognized in the first nine months and $30.6 million was
recognized in the fourth quarter. The gain is recorded as an
increase in our net sales. We subsequently replaced these
options with similar options for 2009 having a strike price of
$0.50 per pound for the same quantity of tons for a cost of
approximately $10.5 million.

In 2009, we purchased put options for approximately 100,000 tons
of zinc for 2010. The cost of the options was $5.3 million
and they have a strike price of $0.65 per pound. At the time of
the purchases, the options represented approximately 80% of our
anticipated sales volume for 2010. The options are included in
Prepaid expenses and other current assets in our
consolidated financial statements.

As of December 31, 2008, we were party to a contract for
the purchase and delivery of the coal requirements for the power
plant in Monaca through 2010. Each year, we enter into contracts
for the forward purchase of natural gas to cover the majority of
natural gas requirements in order to reduce our exposure to the
volatility of natural gas prices.

Our consolidated financial statements, together with the related
notes and the report of the independent registered public
accounting firm, are set forth on the pages indicated in
Item 15 in this Annual Report on
Form 10-K.

ITEM 9.

CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no changes in or disagreements with accountants on
accounting and financial disclosure.

ITEM 9A.

CONTROLS
AND PROCEDURES

Evaluation
of Disclosure Controls and Procedures

Based on our managements evaluation (with the
participation of our principal executive officer and principal
financial officer), as of the end of the period covered by this
report, our principal executive officer and principal financial
officer have concluded that our disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, (the
Exchange Act)) are effective (provided that the
evaluation did not include an evaluation of the effectiveness of
the disclosure controls and procedures for INMETCO which we
acquired on December 31, 2009) to ensure that information
required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and
Exchange Commission rules and forms and is accumulated and
communicated to our management, including our principal
executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required
disclosure.

Managements
Annual Report on Internal Control Over Financial
Reporting

Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting (as
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act). Because of its inherent limitations,
internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.

Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2009.
In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control Integrated
Framework. In conducting managements evaluation of its
internal control over financial reporting, management has
excluded, due to the timing of the acquisition, the operations
of INMETCO from its December 31, 2009 Sarbanes-Oxley 404
review. INMETCO constituted approximately 12.5% of our total
assets as of December 31, 2009 and 0% of our total revenues
for the year ended December 31, 2009. We believe that
management had sufficient cause to exclude the acquisition due
to the fact that INMETCO was acquired on December 31, 2009.
Based on our assessment, management believes that, as of
December 31, 2009, our internal control over financial
reporting, excluding INMETCO as discussed above, is effective
based on those criteria.

The independent registered public accounting firm which audited
our financial statements included in this Annual Report on
Form 10-K
has issued an attestation report on our internal control over
financial reporting. Please see Report of Independent
Registered Public Accounting Firm.

Changes
in Internal Control over Financial Reporting

No change in our internal control over financial reporting
occurred during the quarter ended December 31, 2009 that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

We have audited Horsehead Holding Corp. (a Delaware Corporation)
and subsidiaries (the Company) internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control 
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit. Our audit of, and opinion on, the
Companys internal control over financial reporting does
not include internal control over financial reporting of The
International Metals Reclamation Company (INMETCO),
a wholly-owned subsidiary, whose financial statements reflect
total assets and revenues constituting 12.5 and zero percent,
respectively, of the related consolidated financial statement
amounts as of and for the year ended December 31, 2009. As
indicated in managements report, INMETCO was acquired on
December 31, 2009 and therefore, managements
assertion on the effectiveness of the Companys internal
control over financial reporting excludes internal control over
financial reporting of INMETCO.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, Horsehead Holding Corp. and Subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on
criteria established in Internal Control 
Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of December 31, 2009 and
2008 of Horsehead Holding Corp. and Subsidiaries, and the
related consolidated statements of operations,
stockholders equity and cash flows for each of the three
years in the period ended December 31, 2009, and our report
dated March 16, 2010 expressed an unqualified opinion.

The information required by this item may be found in our Proxy
Statement related to the 2010 Annual Meeting of Stockholders and
is incorporated herein by reference and in Executive
Officers of the Registrant as set forth in
Item 1. Business in this report.

There have been no material changes to the procedures through
which stockholders may recommend nominees to our Board of
Directors since April 10, 2006. We have adopted a Code of
Ethics that applies to our principal executive officer,
principal financial officer and principalaccounting
officer. The text of our Code of Ethics is posted on our
website: www.horsehead.net  click on Investor
Relations, then click on Corp. Governance and
then click on Code of Ethics for Senior Management.
We intend to disclose future amendments to, or waivers from,
certain provisions of the Code of Ethics on the website within
four business days following the date of such amendment or
waiver. Stockholders may request a free copy of the Code of
Ethics from: Horsehead Holding Corp., Attention: Corporate
Secretary, 4955 Steubenville Pike, Suite 405, Pittsburgh,
Pennsylvania 15205.

ITEM 11.

EXECUTIVE
COMPENSATION

The information required by this item may be found in our Proxy
Statement related to the 2010 Annual Meeting of Stockholders and
is incorporated herein by reference.

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 16, 2010.

HORSEHEAD HOLDING CORP.

By:

/s/ James
M. Hensler

James M. Hensler

Its: Chief Executive Officer

POWER OF
ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints James M.
Hensler and Robert D. Scherich, jointly and severally, his
attorney-in-fact, each with the full power of substitution, for
such person, in any and all capacities, to sign any and all
amendments to this Annual Report on
Form 10-K,
and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might do
or could do in person hereby ratifying and confirming all that
each of said attorneys-in-fact and agents, or his substitute,
may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated and
on March 16, 2010.

Signature

Title

/s/ James
M. Hensler

James
M. Hensler

Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)

We have audited the accompanying consolidated balance sheets of
Horsehead Holding Corp. (a Delaware corporation) and
subsidiaries (the Company) as of December 31,
2009 and 2008, and the related consolidated statements of
operations, stockholders equity, and cash flows for each
of the three years in the period ended December 31, 2009.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Horsehead Holding Corp. as of December 31, 2009
and 2008, and the results of its operations and its cash flows
for each of the three years in the period ended
December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Horsehead Holding Corp.s internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our
report dated March 16, 2010 expressed an unqualified
opinion.

Horsehead Holding Corp. (HHC, Horsehead
or the Company) was incorporated in the state of
Delaware in May 2003. On December 23, 2003, the Company
acquired substantially all of the operating assets and assumed
certain liabilities of Horsehead Industries, Inc. and its
wholly-owned subsidiaries. The Company commenced operations on
December 24, 2003.

The Company is a producer of specialty zinc and nickel-based
products sold primarily to customers throughout the United
States of America. It is also the largest recycler of electric
arc furnace dust in the United States and a leading
U.S. recycler of hazardous and non-hazardous waste for the
specialty steel industry. It also provides short-line railroad
service for the movement of materials for both Horsehead
Corporation and outside customers.

NOTE B 

SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently
applied in the preparation of the accompanying consolidated
financial statements follows.

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. The more significant
items requiring the use of management estimates and assumptions
relate to inventory reserves, bad debt reserves, environmental
and asset retirement obligations, workers compensation
liabilities, reserves for contingencies and litigation and fair
value of financial instruments and business acquisitions.
Management bases its estimates on the Companys historical
experience and its expectations of the future and on various
other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from those estimates.

Revenue
Recognition

The Company recognizes revenues from the sale of finished goods
at the point of passage of title or risk of loss, which is
generally at the time of shipment. The Companys service
fee revenue is generally recognized at the time of receipt of
electric arc furnace (EAF) dust, which the Company
collects from steel mini-mill operators.

The components of net sales for the years ended
December 31, 2009, 2008 and 2007 are as follows:

Net sales from one customer represents $56,762 of the
companys 2007 consolidated net sales. No other customer
exceeded 10% of consolidated net sales for 2009, 2008 and 2007.
Products and services are sold primarily to customers in the
hot-dipped galvanizing, rubber and mini-mill markets.

Shipping
and Handling Fees and Costs

The Company classifies all amounts billed to a customer in a
sales transaction related to shipping and handling as revenue.
The Company records shipping and handling costs incurred in cost
of sales.

Cash
and Cash Equivalents

The Company considers all highly liquid investments with
maturities of approximately 90 days or less when purchased
to be cash equivalents.

Accounts
Receivable

The majority of the Companys accounts receivable are due
from customers primarily in the steel, rubber and galvanizing
industries. Credit is extended based on an evaluation of a
customers financial condition. Generally collateral is not
required. Accounts receivable are stated at amounts due from
customers net of an allowance for doubtful accounts. Accounts
receivable outstanding longer than the contractual payment terms
are considered past due. The Company determines its allowance by
considering a number of factors, including the length of time
trade accounts receivable are past due, the Companys
previous loss history, the customers current ability to
pay its obligation to the Company, and the condition of the
general economy and industry as a whole. The Company writes off
accounts receivable when they become uncollectible. Payments
subsequently received on such receivables are credited to the
allowance for doubtful accounts. In 2009, the Company wrote off
$206 in uncollectable accounts and recovered $13 of previously
written off balances. The provision for bad debt expense was
$1,475, $327 and $(433) for 2009, 2008 and 2007, respectively.
The accounts receivable balances at December 31, 2009 and
2008 include amounts due totaling $742 and $7,510 from the
Companys hedge counter-parties resulting from the
settlement of open positions. The receivables were collected in
January 2010 and 2009, respectively.

Inventories

Inventories, which consist primarily of zinc and nickel-bearing
materials, zinc products and supplies and spare parts, are
valued at the
lower-of-cost-or-market
(LCM) using a moving average cost method. Raw
materials are purchased as well as produced from the processing
of EAF dust. Supplies and spare parts inventory used in the
production process are purchased.
Work-in-process
and finished goods inventories are valued based on the costs of
raw materials plus applicable conversion costs, including
depreciation and overhead costs relating to associated process
facilities.

Zinc and nickel are traded as commodities on the London Metals
Exchange (LME) and, accordingly, product inventories
are subject to price fluctuations. When reviewing inventory for
LCM adjustments, the Company considers the forward metals prices
as quoted on the LME as of the balance sheet date to determine
if an LCM adjustment is required.

Property,
Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation
is provided using the straight-line method. Ordinary maintenance
and repairs are expensed as incurred; replacements and
betterments are capitalized if they extend the useful life of
the related asset. The estimated useful lives of property, plant
and equipment are as follows:

The Company reviews the carrying value of its long-lived assets
for impairment whenever events or circumstances indicate that
the carrying amounts may not be recoverable. There were no such
events or circumstances during 2008 and 2007 and therefore no
impairment write-downs were charged to operations. See
Note F for a discussion of asset write-downs in 2009.

Environmental
Obligations

The Company accrues for costs associated with environmental
obligations when such costs are probable and reasonably
estimated. Accruals for estimated costs are generally
undiscounted and are adjusted as further information develops or
circumstances change.

Insurance
Claim Liabilities

The Company accrues for costs associated with self-insured
retention under certain insurance policies (primarily
workers compensation) based on estimates of claims,
including projected development, from information provided by
the third party administrator and the insurance carrier.
Accruals for estimated costs are undiscounted and are subject to
change based on development of such claims.

Asset
Retirement Obligations

The fair values of asset retirement obligations are recognized
in the period they are incurred if a reasonable estimate of fair
value can be made. Asset retirement obligations primarily relate
to environmental remediation at three Company locations. The
liability is estimated based upon cost studies prepared to
estimate environmental remediation upon closure and for purposes
of obtaining state permits to operate the facilities. The
liability is discounted using the Companys estimated
credit-adjusted risk free interest rate at the time the
obligations are recognized.

Income
Taxes

Deferred income taxes reflect the tax consequences on future
years of differences between the tax bases of assets and
liabilities and their respective financial reporting amounts.
The Company recognizes the financial statement benefit of a tax
position only after determining that the relevant tax authority
would more likely than not sustain the position following an
audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the financial statements is
the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the
relevant tax authority.

Stock-Based
Compensation

The Company has a stock-based compensation plan and an equity
incentive plan which are more fully described in Note S.
Employee stock options granted on or after January 1, 2006
are expensed by the Company over the option vesting period,
based on the estimated fair value of the award on the date of
the grant using the Black-Scholes option-pricing model.

Financial
Instruments

The following methods are used to estimate the fair value of the
Companys financial instruments:

Cash and cash equivalents, accounts receivable, notes payable
due within one year, accounts payable, and accrued expenses
approximate their fair value due to the short-term nature of
these instruments.

The Company enters into certain financial swap and financial
option instruments that are carried at fair value. The Company
recognizes changes in fair value within the consolidated
statements of operations as they occur (see Note T).

The Company does not purchase, hold or sell derivative financial
instruments unless it has an existing asset or obligation or
anticipates a future activity that is likely to occur and will
result in exposing it to market risk. The Company uses various
strategies to manage its market risk, including the use of
derivative instruments to limit, offset or reduce such risk.
Derivative financial instruments are used to manage well-defined
commodity price risks from the Companys primary business
activity. The fair values of derivative instruments are based
upon a comparison of the Companys internal valuations to
the valuations provided by third party counterparties with whom
they have entered into substantially identical derivative
contracts. The Company also compares the counterparties
valuations to ensure that there is an acceptable level of
consistency among them. The valuations utilize forward pricing
and an implied volatility of the underlying commodity as well as
interest rate forwards and are therefore subject to fluctuation
based on the movements of the commodity markets.

The Company is exposed to credit loss should counter-parties
with which it has entered into derivative transactions become
unable to satisfy their obligations in accordance with the
underlying agreements. To minimize this risk the Company uses
highly rated counter-parties that meet certain requirements.

In August 2009, the Financial Accounting Standards Board
(FASB) issued guidance on measuring the fair value
of liabilities. The guidance specifies the techniques to be used
in measuring the fair value of liabilities in circumstances in
which a quoted price in an active market for the identical
liability is not available. It is effective for us on
October 1, 2009. The provisions have been applied to the
Companys consolidated financial statements.

In June 2009, the FASB issued guidance that identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements
of nongovernmental entities that are presented in conformity
with generally accepted accounting principles (GAAP)
in the United States. The guidance will change how the Company
references various elements of GAAP when preparing its financial
statement disclosures, but will have no impact on the
Companys financial position, results of operations or cash
flows. It is effective for financial statements issued for
interim and annual periods ending after September 15, 2009.

In June 2009, the FASB issued updated guidance centering around
consolidation of variable interest entities. The updated
guidance includes: a requirement for an enterprise to perform a
analysis to determine whether the enterprises variable
interest or interests give it a controlling financial interest
in a variable interest entity; a requirement for an enterprise
to perform ongoing reassessments of whether it is the primary
beneficiary of a variable interest entity and provides guidance
for determining whether an entity is a variable interest entity.
The update is effective for fiscal years beginning after
November 15, 2009, and for interim periods within the first
annual reporting period. The Company is currently evaluating the
effects it may have on its consolidated financial statements.

In May 2009, the FASB issued guidance that establishes general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued or are available to be issued. It is effective for
interim and annual periods ending after June 15, 2009. The
update had no significant effect on the Companys
consolidated financial statements.

In December 2007, the FASB issued guidance amending the
disclosure of noncontrolling interests in consolidated financial
statements. Among the requirements of the amendment is the
presentation of ownership interests in subsidiaries held by
parties other than the parent be clearly identified, labeled and
presented in the consolidated statement of financial position
within equity, but separate from the parents equity. The
amendment also requires the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be

clearly identified and presented on the face of the consolidated
statement of income. The amendment is effective as of
January 1, 2009. The provisions have been applied to the
Companys consolidated financial statements.

In December 2007, the FASB issued revised guidance relating to
business combinations. Among the principles and requirements of
the revised guidance is how the acquirer recognizes and measures
in its financial statements the identifiable assets acquired,
liabilities assumed and any noncontrolling interest in the
acquiree. It also requires that acquisition costs generally be
expensed as incurred. It is effective prospectively to business
combinations for which the acquisition date is on or after
January 1, 2009. The provisions have been applied to the
Companys consolidated financial statements.

NOTE C 

EQUITY
OFFERINGS AND STOCK REPURCHASE

On April 12, 2007, the Company completed the private
placement of 13,974 shares of its common stock at a price
of $13.50. The net proceeds for the total offering were $174,258
and were used to repurchase the shares of its common stock held
by its pre-November 2006 stockholders and to redeem all of the
Companys outstanding warrants.

In August 2007, the SEC declared the Companys registration
statement on
Form S-1
effective. The registration statement relates to the resale from
time to time of 29,860 of previously unregistered shares of the
Companys common stock issued in its earlier private
placements. The Company did not receive any proceeds from the
registration of those shares.

On August 15, 2007, the Company completed an initial public
offering of shares of its common stock. The SEC declared the
Registration Statement for the initial public offering effective
on August 9, 2007. Pursuant to this Registration Statement,
the Company registered a total of 5,597 shares of common
stock, of which it sold 4,581 shares and certain selling
stockholders sold 1,016 shares. At the public offering
price of $18.00 per share, the aggregate price of the shares of
common stock sold by the Company was $82,457. The net proceeds
realized by the Company from the offering, after accounting for
underwriting discounts and commissions and expenses relating to
the offering, were approximately $75,371. The Company used a
portion of the net proceeds to retire substantially all debt and
used the remaining proceeds to fund capital expansion and
improvements and for general corporate purposes.

On September 1, 2009, the SEC declared effective the
Companys registration statement on
Form S-3
originally filed by the Company with the SEC on July 16,
2009. On September 16, 2009, the Company completed an
underwritten public offering of 8,050 shares of its common
stock, including 1,050 shares sold pursuant to the
underwriters exercise of their over-allotment option to
purchase additional shares. At the public offering price of
$10.50 per share, the aggregate price of shares of common stock
sold by the Company was $84,525. The net proceeds realized by
the Company from the offering, after accounting for $4,226 in
underwriting discounts and commissions and $514 in expenses
relating to the offering, were $79,785. The Company will use the
net proceeds for general corporate purposes, which may include
capital expenditures, working capital, acquisitions, investments
and the repayment of indebtedness. Pending these uses, the net
proceeds may also be temporarily invested in short- and
medium-term securities.

NOTE D 

ACQUISITION
OF BUSINESSES

In June 2009, the Company purchased the customer contracts
related to the electric arc furnace (EAF) dust
collection business of Envirosafe Services of Ohio Inc.
(ESOI) for $11,704. As part of the purchase, the
Company obtained a standard agreement from ESOI not to compete
in the EAF dust collection business for a period of

seventeen years. The Company paid $3,000 on the effective date
with the balance of the purchase price to be paid in a series of
annual fixed and quarterly variable payments through 2025. The
purchase price was allocated as follows:

Customer contracts

$

10,915

Non-compete agreement

789

Total assets purchased

$

11,704

Purchase price

$

11,704

On December 31, 2009, the Company purchased all of the
issued and outstanding capital stock of INMETCO, from Vale Inco
Americas Inc. Under the terms of the stock purchase agreement,
the Company estimates that it will pay cash of $38,802, of which
$33,237, net of cash acquired, was paid at closing. The
remainder is expected to be paid in the first quarter of 2010.
The Company also assumed certain financial assurance obligations
associated with environmental regulatory requirements. The
assurance was provided in the form of a $5,890 letter of credit
supported by a $6,185 increase in the Companys restricted
cash balance. See Note L.

The acquisition of INMETCO will enhance the Companys
hazardous waste services platform and diversify its range of
capabilities and products including the recycling of EAF dust
and stainless steel flue dust for the recovery and reuse of a
wide range of valuable metals. It expands the Companys
industrial metals portfolio while leveraging the Companys
key strengths in hazardous waste management and high temperature
metals recovery.

The purchase price was allocated as follows:

Cash

$

763

Accounts receivable

9,164

Inventories

6,794

Prepaid expenses and other current assets

489

Deferred income tax asset

672

Property, plant and equipment

34,469

Intangible assets

2,400

Other assets

54

Total identifiable assets purchased

54,805

Accounts payable

3,446

Accrued expenses and other current liabilities

650

Deferred income tax liability

10,380

Other long-term liabilities

1,527

Total liabilities assumed

16,003

Net assets purchased

38,802

Purchase price

$

38,802

NOTE E 

NEW
MARKETS TAX CREDIT PROGRAM FINANCING

On June 8, 2009, the Company completed a financing
arrangement under the New Markets Tax Credit (NMTC)
program to help fund its expansion project in Barnwell, South
Carolina. The arrangement provides $5,925 of NMTC funds to be
used for completion of the development of the project site and
construction of buildings and other real property. The funds and
the accrued interest thereon are being held in escrow and will
be released upon completion of the aforementioned project site
development. The funds are recorded as Restricted
cash on the consolidated balance sheet of the Company as
of December 31, 2009. A portion of the funds are in the

form of an equity investment by Banc of America CDE III, LLC and
CCM Community Development IV LLC, in the amount of $5,670.
The equity holders are entitled to guaranteed payments of 2% per
annum on their investment. The equity holders also have the
option (the purchase option) of having their
investment purchased by the Company at the end of their seven
year investment period in the project. The purchase option
totals $360 and is treated as a reduction of their equity
holdings and is recorded in Other long-term
liabilities on the consolidated balance sheet of the
Company as of December 31, 2009. The Company incurred $838
in equity issuance costs which were deducted from the equity
proceeds, leaving net proceeds of $4,472 as a non-controlling
interest in the Companys Stockholders equity section
of the consolidated balance sheet as of December 31, 2009.
A portion of the NMTC funds are in the form of a seven-year loan
in the amount of $255. The loan is recorded in Long-term
debt, less current maturities on the consolidated balance
sheet of the Company as of December 31, 2009.

NOTE F 

ASSET
WRITE-DOWNS AND DISPOSALS

In 2009, the Company wrote-down to net realizable value certain
machinery and equipment and supplies inventories by $1,056
primarily related to its Beaumont, Texas recycling facility. The
write-down resulted in a reduction of $1,349 in the cost and
$628 in the accumulated depreciation of the Companys
machinery and equipment and $335 in its supplies inventories. In
the third quarter of 2009, the Company made a decision to
proceed with the construction of its Barnwell, South Carolina
kiln project and expects to start the first kiln early in the
second quarter of 2010. The start date of the second kiln will
be dictated by market conditions. The Waelz kiln process that
will be used at the Barnwell facility is a lower cost process
than the process that was used at the Beaumont facility,
therefore, management does not intend to use the higher cost
capacity at the Beaumont facility. The total amount of the
write-down is included in Cost of sales of zinc material
and other goods (excluding depreciation) on the
consolidated statement of operations.

In the fourth quarter of 2009, the Company incurred a loss of
$97 on the disposal of machinery and equipment having a cost of
$270 and accumulated depreciation of $173. The loss is recorded
in Interest and other income on the consolidated
statement of operations.

NOTE G 

CASH AND
CASH EQUIVALENTS

Cash and cash equivalents consisted of the following at
December 31, 2009 and 2008.

2009

2008

Cash in bank

$

10,358

$

82,789

Government money market funds

35,000



Money market demand account

30,075



Certificates of deposit

20,047



Commercial paper



39,979

$

95,480

$

122,768

The Companys cash in bank balance is concentrated in two
U.S. banks. The Company purchased commercial paper,
government money market funds and certificates of deposit to
mitigate the risk associated with this level of concentration.
The commercial paper as of December 31, 2008 was purchased
from major U.S. financial institutions, carried interest
rates ranging from 0.2% to 0.4% and matured at various dates
through August 10, 2009. It was guaranteed by the Federal
Deposit Insurance Corporation (FDIC) through its
Temporary Liquidity Guarantee Program (TLGP). The
goal of the TLGP is to preserve confidence in the
U.S. banking system and to restore liquidity to the credit
markets. The program covers eligible debt issued by financial
institutions between October 13, 2008 and June 30,
2009 with the guarantees expiring no later than June 30,
2012.

The government money market funds invest only in US Treasury
bills, notes and other obligations guaranteed by the US
Treasury, and it seeks to provide high levels of current income,
liquidity and stability of principal. The fund does not invest
in repurchase agreements.

The money market demand account carries an interest rate 1.25%.
The certificates of deposit have a four week maturity and have
an interest rate of 0.4%. They were purchased through the
Certificate of Deposit Account Registration Service
(CDARS). CDARS allows a depositor to keep large
deposits federally insured by investing in certificates of
deposit in amounts covered by the FDIC. Under the program the
depositor invests one amount with a financial institution
participating in the CDARS program. That financial institution
purchases certificates of deposit from other participating
financial institutions in amounts covered by the FDIC. The
balances approximate fair value.

NOTE H 

INVENTORIES

Inventories consisted of the following at December 31, 2009
and 2008:

2009

2008

Raw materials

$

10,413

$

15,885

Work-in-process

1,471

4,394

Finished goods

13,939

13,969

Supplies and spare parts

14,085

12,961

$

39,908

$

47,209

Inventories are net of reserves of $2,971 and $12,457 at
December 31, 2009 and 2008, respectively. The reserves
include a reserve for slow-moving inventory of $2,971 and $3,463
at December 31, 2009 and December 31, 2008,
respectively and an $8,994 LCM reserve at December 31,
2008. The provisions for slow-moving inventory were $84, $1,309
and $592 for 2009, 2008 and 2007, respectively. The significant
and rapid decline of the average LME price of zinc in 2008,
particularly in the fourth quarter, resulted in the company
recording LCM adjustments of $1,272 and $7,722 to its raw
materials and finished goods inventories in 2008 and $2,822 to
its finished goods inventory in the first quarter of 2009. No
LCM adjustment was recorded in 2007.

NOTE I 

PREPAID
EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consists of the
following at December 31, 2009 and 2008.

Property, plant and equipment consisted of the following at
December 31, 2009 and 2008:

2009

2008

Land and land improvements

$

11,110

$

8,494

Buildings and building improvements

27,734

23,228

Machinery and equipment

169,296

113,444

Construction in progress

41,906

34,878

250,046

180,044

Less accumulated depreciation

(58,739

)

(43,903

)

$

191,307

$

136,141

NOTE K 

INTANGIBLE
ASSETS

Intangible assets consisted of the following at
December 31, 2009.

2009

Customer contracts

$

10,915

Customer relationships

1,400

Non-compete agreement

789

Trademark

600

Technology

400

14,104

Less accumulated amortization

(346

)

$

13,758

The intangible assets are being amortized on a straight-line
basis over their useful lives, which are twenty years for the
customer contracts, customer relationships and the trademark,
seventeen years for the non-compete agreement and ten years for
the technology asset. The Company amortized $346 in 2009 and
will amortize approximately $732 each year thereafter.

NOTE L 

RESTRICTED
CASH

Restricted cash is related to the following at December 31,
2009.

2009

Letters of credit

$

21,602

ESOI deferred purchase price obligation

4,000

NMTC

5,934

$

31,536

The restricted cash relating to our letters of credit and the
ESOI deferred purchase price obligation are held in third-party
managed trust accounts. They are maintained by third-party
trustees and are invested in money market and other liquid
investment accounts. The restricted cash relating to the NMTC is
held in escrow in an interest bearing checking account.

Deferred financing costs of $1,911 were incurred in 2006 in
connection with the companys Credit Facility and term
loans from CIT Group Business Credit, Inc. as described in
Note N. These costs were being amortized over the term of
the related debt. Amortization, which is included in interest
expense in the accompanying consolidated statements of
operations, was $2,506 in 2007. As more fully described in
Note N, substantially all of the outstanding debt was
repaid and cancelled in 2007 and the remaining deferred
financing costs were written off.

Amortization of the costs associated with the remaining credit
facility were written off in 2009 when the facility was
cancelled in December of 2009,as more fully described in
Note N. Amortization was $999 in 2009 and $666 in 2008.

NOTE N 

NOTES PAYABLE
AND LONG-TERM DEBT

Long-term debt consisted of the following at December 31,
2009 and 2008:

2009

2008

Loan payable

$

255

$



Note payable to Beaver County Corporation for Economic
Development

58

120

313

120

Less portion currently payable

(58

)

(62

)

$

255

$

58

The loan payable is associated with the NMTC program discussed
below and in Note E to these consolidated financial
statements. It is an interest only loan with the principal due
at the end of the term.

In September 2005, HC entered into a $300 term loan with the
Beaver County Corporation for Economic Development. The proceeds
of the loan were used to purchase equipment for the Monaca,
Pennsylvania location. The loan is a five year note with
principal and interest payments due monthly through October
2010. Interest is charged at 3.125% per annum. The loan requires
the company to maintain a minimum number of employees at the
Monaca location.

On July 15, 2005, HC entered into a $72,000 credit facility
(Credit Facility) with certain lenders. The Credit
Facility was comprised of a $45,000 revolving credit facility
(Revolver) including a letter of credit
sub-line of
$35,000 under the terms of a Financing Agreement with CIT
Group/Business Credit, Inc. (CIT), and a $27,000
term note (Term Note) under the terms of a Second
Lien Financing Agreement with Contrarian Service Company, L.L.C.
(Contrarian).

On October 25, 2006, the Credit Facility was amended to
provide for an additional borrowing availability of $30,000
under the Revolver and for an addition to the Term Note with
Contrarian of $30,000. The Term Note was due in October 2010.
The Term Note and the borrowings under the Revolver were repaid
in 2007 and the Term Note was cancelled. As a result, the
Companys amended Credit Facility consisted only of the
$75,000 Revolver. The Financing Agreement was amended in
December of 2007. The amendment raised the limits on the
companys capital expenditures for 2007 through 2010.

The Revolver required a lock-box arrangement, which provided for
all receipts to be swept daily to reduce borrowings outstanding
under the credit facility and contained a subjective
acceleration clause in the revolving credit facility.
Accordingly, any outstanding borrowings under the Revolver were
classified as a current liability.

The outstanding borrowings on the Revolver, together with the
outstanding letters of credit, could not exceed the
Companys borrowing base, which included eligible
receivables, inventories, and certain other assets. The
underlying Financing Agreement, as amended, called for interest
payable monthly at either prime (3.25% at December 31,
2008) plus .25% or LIBOR (1.08% at December 31,
2008) plus 2.5% and letter of credit fees of 2.5%.

The Financing Agreement also provided for certain covenants, the
most restrictive of which limited indebtedness, sales of assets,
dividends, investments, related party transactions and certain
payment restrictions and provided for the maintenance of certain
financial covenants. If an event of default were to have
occurred, the rate on all obligations owed under the Revolver
and other borrowings from CIT would have been increased by 2%
per annum.

On June 4, 2009 and again on June 30, 2009, the
Company amended its Financing Agreement. The June 4, 2009
amendment enabled the Company to participate in the NMTC program
to help fund the Companys expansion project in Barnwell,
South Carolina. It also provided for amendments to certain terms
of the Financing Agreement, the most significant of which
increased the two interest rate margins applicable to amounts
outstanding under the Revolver from 2.50% to 4.00% for LIBOR
loans and from 0.25% to 3.00% for prime rate loans; increased
the fee rate applicable to undrawn letters of credit from 2.50%
to 4.00%; established a minimum rate for LIBOR loans equal to
1.75% and increased the unused line of credit fee rate from
0.375% to 0.75%. It also increased the threshold below which the
Company would be required to comply with certain financial
covenants under the Revolver from net availability for any ten
consecutive days of $5,000 to $12,500. Below this threshold, the
Company was to comply with the consolidated senior leverage
ratio, consolidated fixed charge coverage ratio and consolidated
EBIDTA maintenance covenants in the Financing Agreement. The
June 30, 2009 amendment primarily reduced the amount of
borrowing available to the Company under the Revolver by
$30,000, from $75,000 to $45,000. The Revolver was originally
scheduled to expire in 2010 but was cancelled in December 2009.
There was no outstanding balance under the Revolver at
December 31, 2008, and substantially all of the
Companys assets were pledged as security under its Credit
Facility at December 31, 2008.

At December 31, 2008 the Company had $14,560 of letters of
credit outstanding under the Revolver to collateralize
self-insured claims for workers compensation and other
general insurance claims and closure bonds for the
Companys two facilities in Pennsylvania. In September
2009, the Company issued an additional $14,560 of letters of
credit outside of the Revolver and in the fourth quarter of 2009
cancelled the letters of credit that were outstanding under the
Revolver. In December 2009, the Company issued a letter of
credit for $5,890 to satisfy the environmental financial
assurance requirement it assumed in connection with its purchase
of INMETCO. The total balance of letters of credit outstanding
is $20,574 at December 31, 2009 which includes an increase
of $124 relating to one of the letters of credit. The Company
provided cash as collateral for the letters of credit issued in
2009, see Note L.

The components of the Companys net deferred tax asset
(liability) at December 31, 2009 and 2008 are as follows:

2009

2008

Deferred tax assets:

Accrued fringe benefits

$

564

$

1,435

LCM Reserve



3,440

Prepaid hedge contracts

1,240

711

Stock compensation

1,878

1,211

State net operating loss carryforward

1,293



Inventory Unicap

1,241



Accrued workers compensation

1,038

792

Other

4,192

3,887

11,446

11,476

Deferred tax liabilities:

Property, plant and equipment

(21,122

)

(7,877

)

INMETCO purchase price adjustment

(5,001

)



Other

(918

)



(27,041

)

(7,877

)

Net deferred tax asset (liability)

$

(15,595

)

$

3,599

The above deferred tax assets and liabilities at
December 31, 2009 and 2008 have been included in the
Companys consolidated balance sheets as follows:

2009

2008

Current deferred tax asset

$

672

$

4,925

Current deferred tax (liability)

(497

)



Net current deferred tax asset

175

4,925

Non-current deferred tax (liability)

(15,770

)

(1,326

)

Net deferred tax asset (liability)

$

(15,595

)

$

3,599

The tax rate for the nine months ended September 30, 2009
was 33.3% versus 37.8% for 2009. The significant increase in
rates was primarily the result of recently enacted tax law
changes in the fourth quarter of 2009 that will allow the
Company to carry back the 2009 losses five years versus two
years resulting in a reduction of the loss of the domestic
production activities deduction benefit. Additional changes in
the effective tax rate were the result of changes in estimates
and corrections to certain deferred tax items.

The Company and its subsidiaries file income tax returns in the
U.S. and various state jurisdictions. Tax regulations
within each jurisdiction are subject to the interpretation of
the related tax laws and regulations and require significant
judgment to apply. The tax years that remain subject to
examination range from 2005 through 2009.

The Company had no unrecognized tax benefits as of
December 31, 2009 and 2008, respectively.

Other long-term liabilities consisted of the following at
December 31, 2009 and 2008:

2009

2008

Environmental obligations

$

2,013

$

2,047

Insurance claim liabilities

7,747

6,964

Asset retirement obligations

2,678

1,246

Deferred purchase price obligation

5,869



Other

558



$

18,865

$

10,257

Environmental
obligations

Upon the acquisition of the operating assets and the assumption
of certain liabilities of Horsehead Industries, Inc. in 2003(see
Note A), the Company assumed certain liabilities related to
environmental issues cited in a 1995 Consent Decree (the
Consent Decree) between Horsehead Industries, Inc.
and the United States Environmental Protection Agency
(EPA) and the Pennsylvania Department of
Environmental Protection. The Consent Decree calls for, among
other things, the removal of certain materials containing lead
from the Companys Palmerton, Pennsylvania facility and the
construction of a storage building for calcine feed materials at
the Palmerton facility. Half of the lead containing material was
removed in 2007 and the remainder was removed in 2008. These
environmental obligations were recorded based on the estimated
undiscounted costs required to achieve compliance with the
Consent Decree and totaled $1,458 at December 31, 2009 and
2008.

Environmental obligations also include estimated post-closure
costs required by the EPAs Resource Conservation and
Recovery Act (RCRA) related to a portion of the
property at the companys Bartlesville, Oklahoma facility.
This liability was recorded based on the estimated costs
required to achieve compliance with the RCRA. In 2006, a
post-closure permit was issued by the Oklahoma Department of
Environmental Quality which triggered the beginning of a
30 year period of post-closure care. Based on the
companys annual review of the estimated annual costs
required for the care specified under the permit, the liability
was adjusted in 2009 and 2008 to reflect the discounted net
present value of these costs using an undiscounted obligation of
$1,249 in 2009 and $1,414 in 2008 and a discount rate of 6%. The
environmental obligations related to Bartlesville at
December 31, 2009 totaled $600, of which $45 is recorded as
a current liability. The liability was $624 at December 31,
2008, of which $35 is recorded as a current liability.

Insurance
claim liabilities

Insurance claim liabilities represent the non-current portion of
the companys liabilities for self-insured retention under
certain insurance policies, primarily related to workers
compensation. The Company estimates $2,400 of workers
compensation claims will be paid in 2010 (see Note O).

Asset
retirement obligations

The Company currently recognizes a liability for the present
value of future asset retirement obligations if a reasonable
estimate of the fair value of that liability can be made. The
associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset.

Three such assets and related liabilities exist. One is for the
environmental remediation upon ultimate closure of the Ellwood
City facility. The original long lived asset cost was determined
to be $744 and is being amortized over a 20 year period.
The second is for the ultimate closure of the Monaca
facilitys fully permitted landfill. The original long
lived asset cost was determined to be $632 and is being
amortized and accreted over an 18 year period.

The third relates to the permitted storage units at the
Palmerton facility. Its original cost was valued at $206 and is
being amortized and accreted over a 25 year period. The
related depreciation expense for 2009, 2008 and 2007 associated
with the capitalized costs was $43, $48 and $48, respectively,
and the related expense (which is included in interest expense)
associated with accreting the liability for 2009, 2008 and 2007
was $103, $95 and $87, respectively.

Deferred
asset purchase price obligations

The Company will pay a portion of the purchase price of
ESOIs EAF dust collection business in a series of annual
fixed and quarterly variable payments through 2025. The Company
is required to provide security in the amount of $4,000 for the
fixed portion of the payments until December 31, 2010 at
which time the amount of the security will be reduced to $2,500.
In July 2009, the Company paid $4,000 into an escrow account to
satisfy the requirement. See Note L. The payments have been
discounted using rates of approximately 11.8% and 16.0% for the
fixed and variable payments, respectively. The discount rates
were determined based on the average yield on comparable
corporate bonds and the industry weighted average cost of
capital. At December 31, 2009 the net present value of the
payments was approximately $7,560, of which $1,691 is recorded
as a current liability and $5,869 is recorded as a non-current
liability. See Note D to these consolidated financial
statements for a further discussion of the purchase.

NOTE R 

EMPLOYEE
BENEFIT PLANS

The Company maintains two defined contribution 401(k) plans that
cover substantially all of its employees. Salaried employees are
eligible to enroll upon date of hire. Effective October 1,
2009, the Company amended the eligibility requirements in the
hourly employees plan. Under the amendment, hourly employees are
eligible to enroll ninety days after their date of hire.
Employees may make elective deferral contributions to the plans
subject to certain plan and statutory limitations. The Company
makes contributions to the plans on behalf of each employee who
has achieved one year of service.

Effective January 2008, the Company modified the salaried
employees plan. In 2008, the Company contributed 3% of an
employees total compensation and also matched 50% up to
the first 4% of an employees contribution based on total
compensation. In 2007, the Company matched 100% of an
employees contribution to the plan up to a maximum of 3%
of the first $100 of base wages. The provisions for matching
contributions to the plan for 2009, 2008 and 2007 were
approximately $601, $695 and $258, respectively.

In 2009, 2008 and 2007, the Company made contributions to the
hourly employees plans in accordance with the provisions
of the various basic labor agreements. The provisions for
contributions for 2009, 2008 and 2007 were approximately $1,361,
$1,383 and $902 respectively.

NOTE S 

STOCK-BASED
COMPENSATION

The Company adopted a stock option plan in 2004 (the 2004
Plan) with subsequent amendments in December 2005 and
November 2006. The 2004 Plan provides for the granting of
options to acquire shares of common stock of the Company to key
employees of the Company and its subsidiaries. A total of
1,685 shares are authorized and reserved for issuance under
the 2004 Plan. Options granted under the 2004 Plan are
non-qualified stock options within the meaning of
Section 409A of the Internal Revenue Code of 1986, as
amended. The 2004 Plan is administered by a committee designed
by the Board of Directors of the Company which makes all
determinations relating to the 2004 Plan including, but not
limited to, those individuals who shall be granted options, the
date each option shall vest and become exercisable, the number
of shares to be subject to each option, and the option price.
All options granted under the 2004 Plan to date are fully vested
due to the change in ownership of the Company resulting from the
equity offering and stock repurchase, as described in
Note C, and may be exercised at any time prior to
September 15, 2014.

The aggregate intrinsic value at December 31, 2009 of the
options outstanding under the 2004 Plan was $1,768.

At December 31, 2009, the outstanding options under the
2004 Plan had 4.70 years of remaining life.

In 2006, the Company adopted The Horsehead Holding Corp. 2006
Long-Term Equity Incentive Plan (the 2006 Plan)
which provides for grants of stock options, stock appreciation
rights, restricted stock, restricted stock units, deferred stock
units and other equity-based awards. Directors, officers and
other employees of the Company, as well as others performing
services for the Company, are eligible for grants under the 2006
Plan. The 2006 Plan is administered by the Companys Board
of Directors (the Board).

A total of 1,489 shares of the Companys common stock
were initially authorized for issuance under the 2006 Plan,
which amount increases annually by an amount equal to 1% of the
number of shares on the Companys common stock outstanding
or such lesser amount determined by the Companys Board of
Directors (the Board). The number of shares
available for issuance under the 2006 Plan is subject to
adjustment in the event of a reorganization, stock split, merger
or similar change in the corporate structure or the outstanding
shares of common stock. In the event of any of these
occurrences, the Company may make any adjustments considered
appropriate to, among other things, the number and kind of
shares, options or other property available for issuance under
the 2006 Plan or covered by grants previously made under the
2006 Plan. The shares available for issuance under the 2006 Plan
may be, in whole or in part, authorized and unissued or held as
treasury shares.

The following is a summary of the material terms of the 2006
Plan.

Eligibility  Directors, officers and other
employees of the Company, as well as other individuals
performing services for the Company or to whom the Company has
extended an offer of employment, are eligible to receive grants
under the 2006 Plan. However, only employees may receive grants
of incentive stock options.

Stock Options  The Board may award grants,
subject to certain limitations, of incentive stock options
conforming to the provisions of Section 422 of the Internal
Revenue Code, and other non-qualified stock options.

The exercise price of an option granted under the 2006 Plan may
not be less than fair market value on the date of the grant.

The Board will determine the term of each option in its
discretion. However, no term may exceed ten years from the date
of grant, or, in the case of an incentive option granted to a
person who owns stock representing more than 10% of our voting
power, five years from the date of grant.

Stock Appreciation Rights (SARs) 
SARs entitle a participant to receive the amount by which the
fair market value of a share of the Companys common stock
on the date of exercise exceeds the grant price of the SAR.

The grant price and the term of a SAR will be determined by the
Board, except that the grant price of a SAR may not be less than
the fair market value of the shares of the Companys common
stock on the grant date.

Termination of Options and SARs  Options and
SARs under the 2006 Plan, whether or not then exercisable,
generally cease vesting when a grantee ceases to be a director,
officer or employee of, or to otherwise perform services for the
Company.

Restricted Stock  The Board may award
restricted stock subject to the conditions and restrictions, and
for the duration, which will generally be at least six months,
that it determines in its discretion. Unless the Board
determines otherwise, all restrictions on a grantees
restricted stock will lapse when the grantee ceases to be a
director, officer or employee of, or to otherwise perform
services for the Company.

Restricted Stock Units; Deferred Stock Units 
The Board may award restricted stock units subject to the
conditions and restrictions, and for the duration, which will
generally be at least six months, that it determines in its
discretion. Each restricted stock unit is equivalent in value to
one share of common stock and entitles the grantee to receive
one share of common stock for each restricted stock unit at the
end of the vesting period applicable to such restricted stock
unit. Unless the Board determines otherwise, all restrictions on
a grantees restricted stock units will lapse when the
grantee ceases to be a director, officer or employee of, or to
otherwise perform services for the Company.